In particular, products which limit exposure to individual holdings can provide the diversification investors concerned about market valuations need, while still producing an income well in excess of most other asset classes.
Indeed, we expect dividend-focused ETFs to really take off in the post-retirement market. Savers will have already had to contend with the volatility inherent in any investment throughout their working lives, and will be keen to put the lump sums they have saved to effective use.
However, with annuity rates coming down sharply in the wake of new pension freedoms, many products now pay less than 2.5 per cent income a year. A product producing more than double that could clearly be attractive, and while the underlying capital will fluctuate in value, diversification across more than 100 companies should help ease concerns over wealth preservation.
Viktor Nossek is director of research of WisdomTree Europe
Key points
Alternative sources of income – such as ETFs – are coming to the fore.
ETFs focused on equities all produce a natural yield as a function of their exposure.
It is expected that dividend-focused ETFs are to really take off in the post-retirement market.
