From a European investor’s point of view, to generate income in today’s market, the first thing we would suggest is to find an active manager.
Valuations on risk-free assets are extremely expensive. And if you only look at passive products, the expected volatility for the very low yields is potentially pretty unattractive. So, if you can find a manager who is global, multi-sector and is relatively smart about building a balanced approach to income generation, today’s a really good market to look at euro-denominated securities to generate income for a portfolio that’s investment-grade–rated on average.
The yield that you can pick up from owning three-to seven-year-type bonds, as long as it’s not CCC-type risk and taking on undue potential default risk, makes a lot of sense in today’s markets. Although valuations aren’t fantastic, as long as a central bank is willing to be a price-insensitive, very large buyer, the probability of defaults rising meaningfully in the near term is pretty small.
So, if you’re a euro-denominated investor and you need income, an active, balanced approach to income generation makes a lot of sense.
