Building a multi-asset income portfolio

This article is part of
Guide to managing a multi-asset portfolio in a crisis

Shoqat Bunglawala, head of global portfolio solutions for Emea at Goldman Sachs Asset Management, is also keen on corporate bonds, and also urges clients to look away from the UK equity market for dividends. 

He says: “A-rated US corporate bonds yielded over 4 per cent at the height of the crisis, implying default rates that are more commonly associated with much weaker companies.

"Many UK investors will see their dividend income shrink by a third or more this year, as half of the UK equity market cuts payouts. In comparison, less than 10 per cent of the largest 500 US companies have had to cut dividends to date, [and these cuts have also amounted to] significantly less in value than UK companies.”     

But as credit markets have rallied off their lows since March, few such opportunities are still available a few months on. Craig Rippe, who runs a multi-asset income fund at Canada Life Investments, is wary of investing in corporate bonds in the current climate.

He says: “The problem with investment grade corporate bonds, which are the highest quality corporate bonds, is that yields are low, unless you go right to the edge of it, towards the start of the high-yield bond market, and obviously that is riskier.”

Instead, he is keen to invest in some of the equities which have an income stream which has proved durable over time, such as Unilever. 

He says: “With Unilever, the yield is quite attractive, and its a yield that will be paid into the future. It is also likely that an investor will get a capital gain from owning those shares over the long-term, though there will likely be quite a bit of volatility along the way.”