How can multi-asset solutions meet income requirements?

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Guide to risk and return in multi-asset

How can multi-asset solutions meet income requirements?

Multi-asset income funds have become increasingly popular among clients for a number of reasons.

First, clients face the prospect of having to fund their own retirement should they choose to go into drawdown in later life. So products and solutions providing an income can be useful in client portfolios.

Providers have also recognised that the need for income is growing among advisers’ clients and have responded by launching products that target an income.

What is also behind the growth of income funds is the low-yield environment advisers and their clients find themselves in now. 

AJ Bell launched two new income funds in March this year that will pay income to investors monthly.

Kevin Doran, chief investment officer at AJ Bell, noted in the press release: “Income generation is a goal for a huge proportion of investors, particularly with interest rates remaining perpetually low and pension freedoms placing the onus on people to generate an income from their investments.”

Above and beyond

Where once investors might have been able to rely on a fixed income fund to generate the income required from their portfolio, this is no longer the case.

Now investors favour funds such as multi-asset income funds, which have the ability to source an income from across a range of asset classes.

As Will McIntosh-Whyte, assistant fund manager of the Rathbone Multi-Asset Portfolio Funds, observes: “Low yields from some fixed income assets mean that we need to look outside of this traditional source of yield to meet income requirements.”

Ben Seager-Scott, chief investment strategist at Tilney Group, explains: “Unfortunately, whilst low interest rates are a boon for borrowers, the knock-on effect is that savers suffer, and prevailing interest rates tend to underpin the income return for the vast majority of asset classes, to a greater or lesser degree. 

“The result is that many lower-risk asset classes, such as UK government bonds, have low income yields which are actually negative after accounting for the effects of inflation.”

In such a low-yield world, are multi-asset funds able to deliver income to clients?

“Multi-asset funds can attempt to generate income from a wider range of assets, though, as always, higher levels of income return generally means a higher level of risk,” he points out.

“However, using a multi-asset fund offers investors the opportunity to access income from a range of different asset classes, such as corporate bonds, income-yielding equities, property, etc.”

Mr McIntosh-Whyte acknowledges he has had to become “more creative” in generating yield from portfolios, looking outside of the traditional sources of income to investments including structured products, and at specialist areas, such as short-term asset leasing.