Income is still king for direct investors
With returns on cash still negligible and unlikely to change in the near future, investors with J.P. Morgan Asset Management's online investment platform are continuing to seek income elsewhere.
Latest data for the five full months ended 31 May 2012 show 70% of inflows to JPMAM-managed funds on the J.P. Morgan WealthManager+ platform were going to income funds and 30% to growth funds. This is unchanged from the picture for 2011 as a whole.
The top-selling income fund year-to-date on the platform was JPM Global High Yield Bond, managed by the US-based team of Robert Cook and Thomas Hauser.
High yield bonds have produced better returns in the past few years than developed market government bonds, where yields in the major markets remain historically low, although they do carry a higher risk of capital loss through defaults.
Equity income funds also continue to be a popular choice, with many companies' balance sheets in good health despite the gyrations of stock markets as investor risk appetite remains fragile.
Investors who use the J.P. Morgan Asset Management platform can choose to hold their investments in an Individual Savings Account (ISA), which means investments of up to £11,280 (for the 2012/13 tax year) can benefit from the ISA tax breaks. Under the ISA regime, all capital gains are free of tax, as are income returns from bond funds. For equity funds, dividends are paid net of basic-rate tax that cannot be reclaimed, but higher-rate taxpayers have no liability to further tax on dividends, which they would have to pay for investments held outside an ISA.
Keith Evins, Head of UK Marketing at J.P. Morgan Asset Management, said: "With the global macroeconomic picture remaining troubled, investments that supply an income stream are understandably finding favour among investors as they offer an element of tangible return. Although the value of investments can fall as well as rise, the income from investments is not affected by sentiment in the way that share prices are.
"While the immediate threat of meltdown in global markets seems to have been averted with the election result in Greece and the Spanish bailout providing some succour to the Eurozone, the rest of the year is likely to remain a volatile one for investors," added Keith Evins. "However, by putting in a little each month - J.P. Morgan Asset Management's online platform accepts monthly subscriptions from £50 - investors can lessen the risk of entering the market just before a big drop in value, while still enjoying the benefits of an income stream from their investments. Alternatively, investors may choose to invest with lump sums from £500 ."
Keith Evins concluded: "Research by the academics Elroy Dimson, Paul Marsh and Mike Staunton showed that $1 invested in the US equity market in 1900 would have grown to $217 in 2010 on a capital return basis. However, by reinvesting the dividends over the whole period that $1 would have grown to $21,766. While most people do not have a 110-year investment horizon, the illustration clearly shows the importance of income in the total return from investments."