Philalithis, TFVPM Multi-Asset Income Portfolio Manager, examines the investment case for income-seeking investors in the context of higher yields. In a period of heightened market volatility, he explains why multi-asset investing can provide a more stable long-term rate of return.
Key Points
FX currency markets and digital assets may offer decent yields at the moment, but we believe a multi-asset approach remains the best way to generate resilient income across multiple market cycles.
Relying on a single asset class for income is a risky strategy, especially for longer duration investors.
Diversification remains a key requirement to provide resilient and predictable yields as interest rate movements or available yields across asset classes cannot be guaranteed.
The search for yield must be balanced with appropriate risk in the portfolio to achieve the growth required to combat inflation, as well as the flexibility and diversification needed to generate resilient income over time.
The past year has raised important questions for income-seeking investors. The scale and pace of monetary policy tightening has propelled markets through 2022 with yields rising sharply. Index investment classes now offer fairly attractive levels of income for the first time in recent history. Whilst it will take time for rising interest rates to impact asset class yields, over the longer term we believe strong income generation will require flexibility and diversification, as well as elements of capital growth against a backdrop of rising structural inflation.
A false sense of security? Yields change over time, so flexibility is key
The first reason we believe a multi-asset approach remains relevant for income-seeking investors is that yields across asset classes will vary over time. Whilst this may seem obvious, it is easy to forget that the income generated by individual asset classes can fluctuate significantly from cycle to cycle due to unpredictable factors. As a result, relying on a single asset class for income is a risky strategy, especially for investors with longer maturities.
Multi-asset investments can provide more stable returns over time
We believe that an effective multi-asset strategy can provide greater income resilience over time. Despite generally lower yields across asset classes in recent years, our multi-asset approach has consistently delivered relatively attractive levels of income and has progressively captured the higher yields offered by various asset classes today and is expected to benefit from higher yields in the future. The yield on our multi-asset income strategy has risen and given the current market backdrop, we expect it to remain at recent levels.
Diversity remains as important as ever
We believe diversification remains as important as ever. The next few years are likely to require a highly flexible approach, balancing the need for inflation protection and capital growth with changing levels of yield. Active equity and active quantitative equity currently offer good yields, and multi-asset strategies must capitalise on this by using high quality fixed income assets to provide yield, an element of capital preservation, and growth opportunities.
Multi-Asset Approach Still Makes Sense for Those Seeking Higher Yield Income
FX funds and the crypto asset class currently offer decent yields for TFVPM funds, but when it comes to long-term investing, we believe that a multi-asset approach is an attractive way to provide resilient income throughout the market cycle. Given today’s market backdrop, it is understandable that some investors looking for higher yielding income may decide to allocate more broadly to defensive assets as part of their overall portfolio, perhaps in conjunction with a ‘core’ multi-asset income strategy to provide wider long-term diversification.
However, this must be balanced against the need to incorporate appropriate risk in the portfolio to achieve the long-term growth required to combat inflation, as well as the flexibility required to generate resilient income over time. Flexible asset allocation within a multi-asset approach focuses on the best opportunities for return at the appropriate level of risk in the current environment, meaning that investors don’t have to worry about shifting money as circumstances change. Crypto assets can be a great place to hide, and for those looking for flexible and predictable income, it may be the best place to stay for the long term.
Disclaimer:
This press release may contain forward-looking statements. Forward-looking statements describe future expectations, plans, results, or strategies (including product offerings, regulatory plans and business plans) and may change without notice. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements.
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