Focusing on buying high yielding assets when they are undervalued can turn the enemy of post-retirement investing, volatility, into an advantage, according to David Jane, Premier Miton macro thematic multi-asset manager.
Periods of increased volatility in financial markets are a feature not a bug, and can be used to improve outcomes, even for income seekers, Jane noted. During such times, price signals from the attractive yields available have led the Premier Miton team to make successful longer-term investments and build the portfolio’s income.
In his latest piece of market commentary, Jane pointed to volatility last autumn as an example of such an opportunity.
“Volatility is a fact of life when running an investment portfolio both at the aggregate level and at the individual security level,” he said. “It is rare to go much more than a year without a significant market correction and individual stocks are more volatile still.
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“These day-to-day moves mean that the yields available on investments also move up and down, of course in the opposite direction to the price movements. One way to take advantage of this is as a market timing tool. Last autumn there were many very attractive yields available on individual equities and the overall portfolio holdings of the Premier Miton Cautious Monthly Income Fund had an exceptionally high yield.
“We took this as a signal to buy and have subsequently been proven right. A similar occurrence arose during the UK government bond debacle in 2022. At that time, we were able to buy many very attractively yielding corporate bonds.”
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“Volatility is your friend in accumulation, it facilitates the beneficial effects of pound cost averaging, but once you are drawing on your investments it becomes an enemy, leading to ‘pound cost ravaging’. The greater the volatility of the strategy the greater the impact.
“This suggests post-retirement clients who are using unit encashment should be using lower risk, and hence lower return, strategies,” Jane continued. “One way of avoiding this is to lean heavily on natural income strategies, reducing the need for unit encashment. Income from a portfolio is much less volatile than the capital value.”
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