With major central bank policies expected to stay accommodative, interest rates are likely to remain low. In the current environment, investors could consider looking across regions and asset classes to capture income opportunities and build stronger, multi-asset income portfolios.
(with a conservative overall allocation)
- Income investors could still find attractive dividend-paying stocks across global stock markets. Sentiment has been boosted this year by growing expectations that US interest rates may have peaked for the time being, and by diminishing fears of an imminent economic downturn.
- Within a conservative overall allocation to global equities, US share prices are seen to be better supported by more realistic expectations for corporate profits.
- On the contrary, European and emerging market equities look vulnerable to escalating global trade tensions.
- Reasonable income opportunities could also be found among REITs. They are expected to continue to do wellas US interest rates are unlikely to rise this year.
|HY corporate bonds
- In our opinion, US HY issuers look attractive2, having used the strong profits generated in recent years to strengthen their balance sheets. While issuance is declining, demand for US HY bonds remains strong, driven by the search for yield in the current environment.
- We believe, European HY bonds2 are more attractively-valued and are generally higher quality than their American counterparts. This drives demand from investors looking to manage credit risk amid an uncertain global economic outlook.
|US agency and non-agency bonds
- US mortgage bonds (both those issued by government-backed mortgage agencies and those issued by private lenders) could continue to deliver reasonable levels of income and diversification3 benefits to income portfolios.
- With US interest rates no longer expected to rise further this year, the US housing market is expected to perform better after a challenging 2018 – likely reducing the number of mortgage defaults and providing a boost to non-agency mortgages.
- Agency mortgages, meanwhile, could provide an attractive level of income compared to US Treasuries, while offering similar low volatility characteristics.
|High-quality, short-dated bonds
- Liquidity is essential to investment portfolios as it helps provide stability should market volatility pick up, and ensures capital is available to be put to work should attractive opportunities emerge in the event of market downturn.
- High-quality, short-dated bonds instead of cash are preferred to add liquidity to an income portfolio as they could provide a marginal increase in yield.