Multi-Asset Income in a New Regime

Transcript

Karen Watkin:
Generating income is often front of mind for many investors, but the market conditions today are very different from those that we’ve had over the past decade or so. So taking a flexible approach to income investing is critical.

Fahd Malik:
So we focus on efficient income, and the way I would describe efficient income is focusing on income that comes from assets that have good risk-adjusted returns. And in this environment, you don’t really have to reach down in quality to generate efficient income. You can do so by buying higher-quality assets and positioning defensively. But what’s important to keep in mind in this environment is having a global multi-sector approach. You got to look for opportunities outside of the US and not just that, across sectors as well. So the places where we find attractive opportunities right now are emerging-market corporate debt, European high yield and securitized assets.

Karen Watkin:
When we saw bond yields languishing towards the historical end of their ranges, it was important for investors that wanted a compelling level of income to be able to look much further afield. Your fixed-income assets can give you really attractive sources of yield, and so now it’s about being able to pivot your portfolio to think about the role that the other asset classes and strategies can bring to you. So for example, if you think about your equities, even just a few years ago, the gap between your dividend yields and high-yield credit bonds was not very much. It was less than a percent. If you fast-forward to today, actually that gap has now widened to almost 4%. So we think it makes sense to actually be far more balanced with your equities. Yes, have some of those high-dividend payers, but don’t just put all your eggs in one basket. Include some of those secular winners that can benefit from trends like AI that may not be paying much in dividends but actually give you really great upside potential.

Fahd Malik:
What’s also important to remember is that policy might diverge across the globe. And what that means is you got to be nimble, not just in the overall level of duration, but in which country you take that duration in. We are matching the growth risk of a country with its duration risk. So for instance, if you are taking credit and equity risk in the US, we are buying US duration because we think that leads to a better outcome for clients.

Karen Watkin:
Taking a multi-asset approach to income investing can provide a really interesting opportunity for investors because it enables them to capture that growth alongside the income that they want to generate. It also means by having a well-diversified portfolio, that they should be able to experience a smoother path of returns, as well as getting access to a broader array of income sources.