Lofthouse (pictured), manager of the £634m Henderson Global Equity Income fund, says as the world population begins to age, the growing number of pension investors will support the income-paying part of the market. He adds that he is prepared to buy into expensive areas of the market because these stocks can offer a growing level of income above inflation, especially as interest rates and annuity rates are so low.
"One of the most important points of this debate is inflation protection," he said.
"Certain pension funds or their equivalents keep buying up infrastructure and utility stocks at prices the market can’t quite understand. It gives them a lot more certainty and is a different way of investing rather than the sort of 'hope' investing we have in our industry."
"It is quite interesting because they are willing to buy things that are expensive. They aren’t looking for relative performance against something like the S&P, they are just looking for absolute performance and a growing dividend," he added.
Williams, manager of the £93m Miton Multi Cap Income fund, agrees.
"I think the ageing population is a very interesting issue," he said.
"For those who have relied on income from their salary but then enter retirement, then the income potential from shares is a perfect match. As more people are living longer, I absolutely agree that income will remain a popular theme for decades to come."
"However, what is probably more controversial but at the same time even truer is that the younger generation of investors and savers will also favour income investment. Even after the credit crunch, I think we are going to live in a stop-start world for a long time to come and the chance of a normal environment is a long way away."
"It may mean that younger investors use income because if markets were to halve, they could use that income to buy extra shares and if the market goes up, they are just receiving more income."
"There will undoubtedly be wobbles along the way but by favouring income, they can benefit from both sides. It’s going to happen and because of that a multi-cap approach will fast become more in favour," he added.
However, although Williams (pictured) agrees that defensive stocks could well become more expensive in time, he urges investors to consider the risks involved in buying into this area of the market.
"The danger is that the more expensive a stock becomes, the more likely it is going to disappoint at some stage," he said.
"Take tobacco for example, they have been brilliant investments but because of that they are now expensive. The problem is fewer and fewer people are smoking now. Also, if there is a change to the industry and e-cigarettes really take off, then it could put real pressure on those companies."
"The problem is that if you buy those sorts of companies on high valuations, not only could you lose some income but your capital could halve. That is the real anxiety about income-stock valuations becoming too high," he added.
Lofthouse manages the Henderson Global Equity Income fund with Andrew Jones.
The fund was launched in its current format in June 2012. According to FE Analytics, the fund is a top-quartile performer in the IMA Global Equity Income sector over one year, with returns of 23.66 per cent, beating its MSCI World benchmark in the process.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
Henderson Global Equity Income has a yield of 3.6 per cent, an ongoing charges figure (OCF) of 1.79 per cent and requires a minimum investment of £1,000.
CF Miton UK Multi Cap Income was launched in October 2011. It has returned 53.28 per cent since then compared with a sector average of 36.53 per cent.
It uses the manager’s small cap expertise extensively, with 33.4 per cent invested in the AIM, 22 per cent in the FTSE Small Cap, and a further 23 per cent in the FTSE 250. This means it is less exposed to valuations in any one area of the market.
One of the major talking points of 2013 has been about how investors have piled into "safer" mega cap defensive equities as a bond-proxy, causing valuations to soar.
However, although Lofthouse says that cyclical stocks are becoming more popular relative to defensives than they have been in recent times, he adds that the demand for less economically sensitive equities is not just going to disappear.
"There is definitely room for a lot more people to invest in equity income," he said.
"Even in an environment of higher interest rates, equities can still go up. Some people will want growth and others will want income. However, there will always be people who don’t want to take as much risk as others."
"For those who are reaching the end of their investment cycle, they will want to hold defensive equities as they will prefer a more robust portfolio and that is partly because at that point they can’t afford to lose much of their capital."
"In the current low interest-rate environment and with the new governor of the Bank of England saying he isn’t going to raise rates in the next three years, equity income will continue to be very popular," he said.
"What you are seeing is that there is more of a demand for property as people try to find an alternative way of generating income. However, for the older generation, especially as people are living a lot longer, income from equities is still the most attractive solution."
