How to generate income in multi-asset funds


To generate income, multi-asset fund managers are increasingly using greater blends of asset classes, including infrastructure and property, experts have stated.

Dean Cheeseman, portfolio manager in Janus Henderson's UK-based multi-asset team, and Darius McDermott, managing director for Chelsea Financial Services, spoke with FTAdviser about the sort of strategies being used to generate income.

He said: "Generally, multi-asset funds are using different income streams, across different return drivers, getting diversification that way. 

"We are trying to identify low-correlating asset classes, [which] when blended together, will provide a robust, risk-adjusted portfolio."

Mr McDermott added: "The real thing is to find lowly correlated assets, such as property, which should be considered" in portfolio construction.

According to Mr Cheeseman, although there are risks with some less liquid asset classes - such as was seen among certain commercial property funds which were gated temporarily shortly after the Brexit vote in 2016 - he said the multi-asset manager's role is to work out the best way to add these alternative income-generating funds while mitigating risk.

He explained: "You can't just liquidate bricks and mortar, so we use closed-ended vehicles, typically. Therefore the underlying asset pool remains robust and the fund manager is under no stress to raise capital in order to meet redemptions in that scenario, but the price relative to the discount or premium will vary accordingly. And if the price moves to a discount, this is a buying opportunity."

This way managers can mitigate the risk while still getting exposure to good-quality, income-generating asset classes.                 

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