Achieve a better income outcome

Interest and annuity rates as well as bond yields are near record lows. At the same time, equities are not cheap. So earning sufficient income without taking a sizeable amount of risk is not straightforward.

Looking for greater certainty

Investors looking for regular flows of income traditionally have five main options:

  • cash
  • bonds
  • equities, including Real Estate Investment Trusts
  • annuities or
  • multi-asset income strategies.

Yet bank deposits and many types of bonds offer negligible rates of interest, while the other types of investment are scarcely much better. Furthermore, with most asset prices highly correlated, traditional methods of diversification may no longer adequately mitigate risk. 

Managing risk

The starting point of our investment process is to establish our best estimate as to the future performance of the world’s major economies and the direction of interest rates. From this we work out which asset classes are best suited, and in what quantity, to help the portfolio meet its income objective.

However, we accept there is a fair amount of uncertainty, and hence risk, surrounding our central scenario. As a result, we also employ a number of positions that are designed to protect the portfolio’s capital in the event a very different scenario to our central one materializes.

And the portfolio contains a third category of strategies, which are designed to help it meet its objectives regardless of how financial markets fare.

The final analysis

As the economic outlook changes, portfolios can be reassessed to refine risk exposures and ensure they remain appropriately diversified. In doing so, the aim is that they stand a very good chance of meeting their objective, irrespective of how equities, bonds and other traditional asset classes perform.

Past performance is no guarantee of future results. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.