PARTNER INSIGHT: Royal London Asset Management (RLAM) UK equity managers Richard Marwood, Henry Lowson and Martin Cholwill believe investors must focus on sustainability instead of chasing yield in a low interest environment.
Talking to Investment Week editorial director Lawrence Gosling as part of a new series of video interviews, manager of the Royal London UK Growth fund Marwood said it is "always a danger to get too hung up on what looks like a big headline yield".
He said: "We see it time and time again… what looks like a 6%-8% yield being cut. The market is telling you something when you get to that level."
Marwood added that RLAM UK equities focuses more on "sustainability" rather than on attractive potential yields.
RLAM UK Equity Income fund manager Cholwill commented that this sustainability can be identified by companies' track records on their ability to "consistently" convert profits to cash.
He said: "The sustainability of dividend is important, but also companies which can grow their dividend over the longer term [is also important].
"The trouble with big headline yields, particularly if management are struggling to maintain that, is growth in dividend is out of the question.
"The sweet spot is a slightly lower dividend yield to start with, but being able to grow that dividend on a sustainable basis going forward."
Manager of the RLAM UK Smaller Companies fund Lowson added he believes that cash-back profits are a key consideration when he is making investment decisions about a company.
"A dividend is not a requirement for the fund, but over 90% of the fund does actually pay a dividend, with a current yield of just over 1%.
"It is also a good demonstration of capital discipline."
In an environment where yields are so low, costs can make a huge difference to the outcome’
ETF market to hit $7.6trn by 2020
Responsible for fund selection
Closing in 2020
Focused on asset liquidity and credit quality