What happened in May 2019?

Equities struggled.

Global equities struggled during May, with almost all the major markets delivering negative returns as trade tensions escalated between the US and China. The MSCI World Index delivered a negative return of 6.1% in May4.

But not everything else did.

Global fixed income markets were broadly positive during May. US Treasuries and European bonds rallied as risk-off sentiment spiked amid heightened trade tensions and concerns over the slowing global economy.

Various asset classes react differently to market changes. As shown in the chart below, some asset classes have negative correlation to the MSCI World Index (i.e. moving in an opposite direction to stocks). Some move in the same direction (have a positive correlation) but at different extents.

Correlation between asset classes5

10-year correlation against the MSCI World Index**

What are the implications?

The choppy markets in May 2019 once again prompted investors the option to go across asset classes, sectors and regions as volatility will likely persist. Investing dynamically in multiple types of asset classes could help diversify2portfolio risk and broaden income sources.

Three elements to consider:

A balanced allocation in global equities Income investors could still find attractive dividend-paying stocks across across global stock markets.

Based on current market conditions, our multi-asset solutions team’s preference is for the US, which could provide higher quality earnings, compared with Europe, where the regional economy has continued to struggle.

Invest dynamically across fixed income High-yield corporate bonds remain our multi-asset solutions team’s preferred asset class for risk exposure as US growth is likely to support credit which could potentially provide attractive income6.

With the economy moving deeper into a late cycle, credit quality enhancement is becoming more important. And one way to do that is to go beyond traditional fixed income sectors to non-traditional sectors such as securitised debt3.

Non-agency mortgage-backed securities (MBS)3, issued by private financial institutions, tend to be less correlated to traditional fixed income sectors so they could help diversify2 portfolio risk while allowing a wider source of income which is less likely to be impacted by a single risk factor.

Consider non-traditional income sources Income6 can be sourced from stocks and bonds, as well as non-traditional sources such as REITs and preferred equities3.

In general, REITs could be deemed an alternative income source as they offered equity-like returns to a portfolio but higher potential yield than US equities and investment-grade bonds.

With US interest rates likely to stay accommodative this year, this is expected to benefit income-producing securities issued by property companies, such as REITs.


As global growth slows and market uncertainties persist over heightened trade tensions, adopting a multi-asset income approach3 could be an option as it seeks to provide regular income via investing globally across a variety of income-generating securities. This strategy could help smoothen the impact of fluctuating asset prices on total returns while adding resilience to your investment portfolio with a focus on risk.

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