WE believe income stocks are likely to continue to be popular with investors, particularly while market volatility remains high and the economic outlook clouded. The current appeal of higher yielding equities is easy to understand.

A significant number of companies are now yielding more than the relevant benchmark 10- year government bond. More interestingly, a significant number of companies have a dividend yield that is higher than they are paying on their own debt. This gives some indication of the valuation attraction of equities as a whole, but more specifically, high yielding equities, in our opinion.

On top of this, at this stage of the cycle, the companies with higher payout ratios relative to the rest of the market tend to come from the less cyclical, more defensive sectors with relatively secure cash flows, such as utilities, telecommunications and healthcare.

These are sectors that tend to allow investors to opt out of any significant macro economic bets, a trait that may continue to be popular for the next couple of quarters. Even when one removes the need for such stalwart qualities, higher yielding stocks in their own right look to be a sound way to gain exposure to the equity market. High yield equity indices, both in Europe and the US, have tended to outperform their respective benchmark indices and provided better risk adjusted returns over the last 10 years.

An example of this is the S&P 500 dividend aristocrat’s index, which has managed an annualised return of 8.1% over the last decade against the S&P, which has mustered a lowly 2.8%. This stellar return has been managed at a Sharpe ratio of 0.39 vs. 0.02 for the S&P ordinary.

As we have said previously, equity markets are going to be torn between the bulls and the bears until confirmation (or not) that this current soft patch in economic data is just a mid- cycle pause for breath. In the meantime, tilting an equity portfolio towards stocks with a decent yield is one way to shelter from some of the potential volatility ahead.

Our current views are as follows in an equity only context:

US: Overweight We consider that US equities offer the best risk-reward attractions of all the developed markets. Recovery in the US economy is leading the rest of the developed world, and we expect its equity markets to do the same.

EUROPE (excluding UK): Overweight Valuations for European equity markets are amongst the most attractive in the developed world. Stocks have been held back due to eurozone sovereign debt concerns which present a number of interesting opportunities.

JAPAN: Neutral We responded to the post-disaster sell-off by closing our underweight call. The yen may not rise far, and valuations have likely undershot. Long-term issues remain, but after the write-down, the chances of a vigorous cyclical rebound remain high.

UK: Underweight The FTSE should continue to make decent progress this year, but may be marginally held back by concerns surrounding the implementation of the austerity programme.

EM: Underweight Emerging market valuations are “up with events” but we still like the long- term outlook. Look to increase emerging market exposure via cheaper developed market stocks.

Andrew Miller is regional office head of Barclays Wealth in Newcastle