Liontrust First Income Income Units

There are times when the outlook seems good for certain classes of assets. Currently high yielding stocks look attractive to me. There are even times when the level of the market reveals stocks not usually considered by equity income managers.

It can mean the market is a bargain. I think there is evidence that a sweet spot in time has been reached. I have singled out a fund that I believe is well positioned to benefit:- Liontrust First Income’s current net yield is 4.7% which is greater than the yield on most government bonds. The last time this occurred, in Spring 2003, it signalled the bottom of the stock market and this fund delighted its investors with a return in excess of 110% over the subsequent three years (to 31/03/06). Although please remember past performance should not be seen as a reliable guide to future returns and last year demonstrates funds can go down in value as well as up.

However this fund does not just aim to grow your capital. It has increased its dividend every year since Jeremy Lang took charge in 1996 and over the coming year he expects it to be around 5.5%, although this is not guaranteed and it will vary. If interest rates continue to decline (some predict they will fall to 4% during the next twelve months) the yield will look increasingly attractive. The potential growth of income helps investors combat the increase in living expenditures – food, utilities, fuel and of course the most reliable increase to your expenditure, council taxes. Investors who don’t need the income now can reinvest it to increase the potential for income when required.

There is another reason why I feel investors should be buying equity income now. As more and more people retire the wisdom of equity income will proliferate. Historically one of the very few ways that investors have been able to secure a growing income is by buying shares in companies with a record of increasing their dividends. It is our belief that demand for high yielding stocks is set to grow which could drive up prices. Whether you need the income from equities now or not you will one day.