How can multi-asset solutions meet income requirements?

This article is part of
Guide to risk and return in multi-asset

But he adds: “Not aircraft leasing though, which we have disliked for some time and completely avoid.”

And he still sees a role for equities, explaining: “Equities can still provide a healthy dividend and contribute to an income target, but they will always be ‘equities’ in terms of their volatility characteristics.”

The AJ Bell Income fund – one of the two it launched earlier this month – has the following asset allocation in order to target 4 per cent income each year for advisers’ clients:

International bonds42%
UK Government bonds15%
UK Equity15%
UK Corporate bonds10%
Europe ex-UK equity5%
Pacific ex-Japan equity4%
Emerging markets equity4%
Cash (and equivalents)2%

Risk scale

Guilhem Savry, head of global macro and dynamic asset allocation, cross asset solutions at Unigestion, notes: “The search for yield has pushed investors to increase the risk of their portfolios through a combination of higher duration, lower credit quality, more illiquid assets or increased leverage. 

“We have made a different choice. We think that expanding our return sources with alternative risk premia will help to deliver income in a low-yield environment while not exposing us to risks we prefer not to hold.”

With some portfolio managers having to go higher up the risk scale in order to source income, what should advisers and their clients be aware of when selecting a multi-asset income fund for portfolios?

Mike Coop, head of multi asset portfolio management at Morningstar Investment Management Europe, suggests: “Fund managers are constrained by the level of income assets pay out, and to increase yield above this usually means they are selling assets and hence turning capital into income. 

“So investors should be very cautious about funds that offer much higher yields in terms of checking what extra risks come with this, how much the product costs and whether the value of their capital will keep pace with inflation.”