Where to look when you're investing for income

Foreign & Colonial's director of European equities Philip Webster discusses the income sector and where to invest for the best returns.

Today, income's a really important asset class for investors. I mean, we see interest rates that are near all-time lows, we see bond yields at all-time lows, and I think income's always been a strategy that people ... really attracted to, especially those that have accumulated some wealth through their lives, so I think this remains a really attractive, important sector and asset class.

There are three or four big sectors which drive the yield on the FTSE All-Share today, and I think that's sort of telecoms, banks, mining, oil and gas, and I think these are pretty challenging sectors and industries, because ultimately, mining and oil and gas, I don't really have much insight into the iron ore price or the oil and gas price, but I think there are some good businesses in there, they're quite good value, there's some with really good assets, and we think some of these with a sort of 6% yield are pretty attractive today.

The risk and reward debate is really about investing in poor-quality businesses. Our whole process is based around the research and development work we do to find the moat around these businesses. Good balance sheets, good cash flows, and that's really the foundations of what we do. So that's how we deem risk in the portfolio, and that's how we try and mitigate it.

I think the income sector really offers a number of attractions over the coming years. We're still managing to add stocks to portfolios at sort of 4, 5 and 6% yields. These are businesses with very solid balance sheet, good business models and good cash flows, so as a whole, we think the sector's pretty attractive from a valuation perspective.

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