It is surely some coincidence Invesco Perpetual is using the word 'patience' in its current advertising and Neil Woodford has decided to call his new investment trust Patient Capital. Of course, it could just be great minds think alike.
The rise of short-termism, not just in investment horizons and investment markets, but also in life in general, means patience is not so much a virtue but an endangered species. Or, as Invesco describes it, 'an asset.'
If patience is an asset, so is common sense, and both are becoming in short supply.
Last autumn, when we were at the beginning of the modest frenzy over pensions freedom, M&G held a session about what investors can expect, or might want, from multi-asset funds in this context. M&G has, to my mind, an excellent set of funds in this area under the Episode range. The income version is run by Steven Andrew, who has both his own money, and that of his children, invested in the fund.
If patience is an asset, so is common sense, and both are becoming in short supply
He was asked what kind of realistic return pension freedom investors could expect from a fund like Episode Income – a multi-asset income fund.
His reply was an instructive one: "The yield on the fund is 4% because that is what we think is achievable on a long-term basis. We may be able to perform better than that, but 4% is realistic. But investors should remember the yield is not the same as the actual distribution in pounds and pence."
Since the fund's launch, it has actually outperformed that 4% figure on a total return basis, but it is notable many similar vehicles – such as the Franklin Templeton Diversified Income fund – all suggest a realistic yield of 4% or so as the figure investors should pencil in to their expectations.
Andrew was spot-on in highlighting the difference between yield and the actual distribution income-seeking investors will receive. Too often investors have invested in so-called 'income products' without understanding the difference and I worry some advisers do not necessarily understand the difference either, which may explain why some UCIS products are inappropriately sold to clients who need income.
With inflation and interest rates currently so low, 4% looks attractive, but I wonder how many private investors really understand that. Many have anchored in their minds the higher equity returns they have been used to.
More importantly, I wonder how 'patient' investors will be of a return of 'just' 4% over the longer term, particularly those investors who have bought into the idea of pension freedom meaning a better annual income than an annuity can provide.
So let us have more patience and be more realistic, and then we will have a lot more happy investors.
Lawrence Gosling is the founding editor of Investment Week. His views are his own. Send any comments to him at [email protected]
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