The power of income

Income strategies can also provide diversification benefits. They tend to be lower duration than equities generally and may outperform in higher inflationary scenarios, although it is important to include an element of quality to avoid stressed situations that offer a high yield by virtue of low price. 

Income strategies may play a useful role if equities fall in value. When inflation becomes persistently elevated and uncertainty over future inflation remains high, equities generally tend to fall in value. 

Under this scenario, lower-rated income strategies may fall less, while a steady and growing income yield may provide a reliable source of portfolio return, with the more expensively priced equities likely to suffer the sharpest fall in value. 

One thing for advisers to be wary of when examining a potential income investment is the reason why a dividend may be high. 

It could be high because the company is generating a large amount of cash, or it could be that the share price has fallen, but the expected yield has not fallen yet to reflect this. 

Wayne Nutland is head of managed index solutions Premier Miton