Income is the dominant theme among investors at the moment, with the focus on UK equity income spreading to other areas including Asia and emerging markets, according to Adrian Lowcock, senior investment manager at Hargreaves Lansdown.
Bonds have been out of favour this year compared to previous months as the rally has attracted money to equity markets, he said. The FTSE 100's leading stocks are up 10.71% for the year to date, according to data from Bloomberg.
"Whilst markets are reaching new or multi-year highs, we are pretty relaxed about their valuations," Lowcock (pictured) said.
"Currently the level of inflation we have in the UK is good for equities, whilst interest rates paid on cash and bonds are at unattractively low levels."
The rate of UK consumer price inflation remained unchanged at 2.7% for the fourth consecutive month in January, according to the latest official data.
Lowcock said Hargreaves thinks European and Japanese equities remain cheap compared to other areas.
"We like equity income over the longer term and have done for the last 20 years or more," he said.
However getting the right mix of the four elements of cash, property, fixed interest and equities is as important as getting the right geographic allocation, Lowcock said.
"We believe stock picking to be a major factor of good performance. A fund manager who has strong stock picking skills should hopefully be able to out-perform despite how their particular investment style performs.
Therefore an investment with a good stock picker should bring you greater reward over the longer term."
Lowcock said potential problems for investors could arise with their use of ‘guidance tools' instead of paying for financial advisers.
"Some of these tools could be construed as advice and the risk is that the clients think they are getting advice. I would like the FSA to tighten up and clarify the rules of this but given the changeover of regulators and the focus being on RDR2 it may take some time."
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