9 August 2024
Why higher but not highest? We believe it’s far better to consider the investment cycle of an income investment, i.e., from income generation/yields to total returns. If we focus too much on chasing the highest yield and upfront yield generation, we could suffer from early capital depletion and miss the total return opportunity towards the later stages of the investment journey. Furthermore, higher yielding assets may also translate to higher risk exposures.
Investors should have a complete and thorough view of a particular income investment's risk profile and underlying exposure to realise a stable income while making their capital last as long as possible. A “high” income is simply a hook to attract investors; investors should approach with caution given some product construction highlight a high headline yield outcome a whilst under the hook, a high percentage of that income generation could unnaturally be paid out from capital, relying on capital appreciation of growth assets such as equities to achieve the distribution.
Manulife Investment Management has a high conviction towards income investing which we believe will remain relevant into 2024 and beyond. Manulife IM provides a range of income solutions from fixed-income investing to multi-asset investing. These solutions span traditional fixed income, alternative income, equity income and multi-asset income. Furthermore, with active asset allocation, we can harvest the optimal income level for you by considering the balance of risk – we believe that not all yields are born equal; therefore, we do not simply chase yields. Instead, we focus on returns per unit of risk (Sharpe ratio) and generating stable, sustainable and consistent yields through investing across a diversified range of traditional and non-traditional income sources.
In addition, we’d like to advocate an income portfolio concept, i.e. allocating a portion of cash savings to higher-yielding income funds/solutions without taking excessive risks. Asian investors who have been too conservative (by just sitting on bank deposits or US treasuries) or too aggressive (by concentrating on the highest-yielding income funds) should seek to rethink their income portfolio strategy by diversifying a portion of their assets towards alternative/higher-yielding income funds that are, in many ways, complementary to existing holdings.
Read more:
Better income – Preferred securities
Better income – Global multi-asset diversified income
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Cash is king?
Amid volatile market conditions and higher interest rates, seeking security by burying your savings in a deposit account is tempting. As the saying goes, “cash is king”. Or is it?
Better Income
A “Better Income” approach seeks to understand an investor’s investment objective alongside the underlying risk of certain levels of income generation. “Better” income may not refer to the highest income level but the stability and consistency of reasonably higher yields generated throughout various market cycles.
Dollar cost averaging and its benefits
If investors wish to reduce volatility and benefit from long-term growth when the markets move up and down, the passive strategy of dollar cost averaging may be a feasible choice.
Better income – Preferred securities
Over the past three years, preferred securities showed slightly higher volatility than US Treasuries, but less volatile than other rate-sensitive assets like US mortgage-backed securities (MBS) and US investment-grade bonds. Preferreds also demonstrated a relatively better return than US Treasuries, MBS and investment-grade bonds.
Hong Kong/Mainland China market update
Mainland China’s Third Plenum 2024 concluded with structural reforms in key areas, and the government introduced some concrete measures. The Greater China Equities Team believes that mainland China is focusing not only on long-term structural reform but also on short-term economic targets. The series of fiscal and monetary announcements, along with greater subsidies and infrastructure spending, should support a faster recovery in domestic demand.
Better income: Global multi-asset diversified income
The Global Multi-Asset Diversified Income approach remains focused on generating higher, sustainable natural yields from a range of assets with lower correlations and expected relatively lower volatilities.