- Investment Strategist
Skip to main content
- Funds
- Capabilities
- Insights
- About Us
Asset classes
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.
Global markets have remained volatile amid central bank rate hikes, stubbornly high inflation, and ongoing geopolitical tensions. To help navigate these and other risks, many investors have recently turned their attention to investments that can potentially generate consistent income and steady total returns.
This is where income investing comes into the spotlight, which may seem like a straightforward enough concept. However, some investors may not realize that investing for income is not simply about “chasing yield” — in part because the highest-yielding assets may not always be the most attractive. For example, many higher-yielding companies could become hampered by a lack of capital when global markets enter periods of turmoil.
That’s why investors should consider taking an active, multifaceted approach to understand the “big picture” of income investing. Robust, yet flexible, investment solutions spanning across asset classes — including equity, fixed income, and multi-asset strategies — could allow investors to capture overlooked pockets of income and return opportunities, even under volatile market conditions.
In my view, defensive equity sectors and dividend-paying assets look likely to outperform the overall market in the period ahead, potentially helping investors weather the impact of high inflation on their portfolios. In particular, an allocation to real estate investment trusts (REITs), which have historically often outperformed both equities and bonds (Figure 1), could make sense these days. REITs may also be an excellent source of dividend income.
In the post-pandemic era, new investment income and return opportunities have emerged across different segments of real estate, including companies operating cell towers, data centers, warehouses, self-storage facilities, and health care properties. Moreover, the outlook appears bright for the real estate sector as a whole, which has a high proportion of defensive cash flow and may help hedge against inflation. Many landlords remain well positioned to maintain their rental income streams given the strength of renters’ demand, particularly in markets such as the US.
True to form, rising inflation and interest rates worldwide have posed stiff headwinds for many traditional rate-sensitive bonds this year. However, because not all bonds are alike, these same headwinds may act as tailwinds for other types of bonds. Indeed, some fixed income sectors have remained quite resilient and may even benefit from increased inflationary pressures. Examples include floating-rate bank loans and Treasury Inflation-Protected Securities (TIPS), which have continued to hold up well in the face of higher rates and inflation.
In addition, against today’s challenging macro backdrop, high-yield corporates, convertible bonds, securitized credit, and emerging markets (EM) local debt may outperform many conventional, investment-grade fixed income sectors. Residential mortgage-backed securities (RMBS) may also be worth a look, as the collateral typically benefits from rising home prices.
EM local debt may be more susceptible to global geopolitical factors than other fixed income sectors but should not be written off on that basis alone. Many EM central banks are well ahead of the Fed in hiking rates to help blunt inflation, while high commodity prices are a boon to some EM commodity exporters.
Income-oriented investors might also consider diversified, multi-asset investment strategies that leverage both traditional and complementary sources of income (such as real assets, options, and other fixed income assets). For example, covered-call options on single stocks may provide additional income potential, as might selling put options on high-quality stocks.
Prudent security selection is critical when investing in options. Trading options over corporate earnings announcements should be avoided in particular, as markets are likely to experience more extreme volatility around companies’ quarterly results.
Lofty inflation, economic uncertainty, and central banks’ responses will likely continue to impact global markets through 2022 and perhaps into 2023. Geopolitical events this year, particularly the conflict in Ukraine and sanctions on Russia, have dealt a heavy blow to supply chains worldwide, causing shortages in agricultural, metals, and energy commodities and further stoking inflation. Higher energy prices and potential energy rationing in some regions could also weigh on various economies’ paths to recovery.
With so many dynamic moving parts and so many different types of assets to choose from, investors shouldn’t go it alone. Partnering with a capable, experienced active investment manager may enable investors to capitalize on compelling income opportunities, while also effectively managing portfolio risk. That’s the power of active management.
Chart in Focus: Can quality hedge against inflation?
Continue readingIs your portfolio keeping pace with the changed outlook?
Continue readingURL References
Related Insights
Past results are not necessarily indicative of future results and an investment can lose value. Funds returns are shown net of fees. Source: Wellington Management
© 2024 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The Overall Morningstar Rating for a fund is derived from a weighted average of the three, five, and ten year (if applicable) ratings, based on risk-adjusted return. Past performance is no guarantee of future results.
The content within this page is issued by Wellington Management Singapore Pte Ltd (UEN: 201415544E) (WMS). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. Information contained on this website is provided for information purposes and does not constitute financial advice or recommendation in any security including but not limited to, share in the funds and is prepared without regard to the specific objectives, financial situation or needs of any particular person.
Investment in the funds described on this website carries a substantial degree of risk and places an investor’s capital at risk. The price and value of investments is not guaranteed. The value of the shares of the funds and the income accruing to them, if any, and may fall or rise. An investor may not get back the original amount invested and an investor may lose all of their investment. Investment in the funds described on this website is not suitable for all investors. Investors should read the prospectus and the Product Highlights Sheet of the respective fund and seek financial advice before deciding whether to purchase shares in any fund. Past performance or any economic trends or forecast, are not necessarily indicative of future performance. Some of the funds described on this website may use or invest in financial derivative instruments for portfolio management and hedging purposes. Investments in the funds are subject to investment risks, including the possible loss of the principal amount invested. None of the funds listed on this website guarantees distributions and distributions may fluctuate and may be paid out of capital. Past distributions are not necessarily indicative of future trends, which may be lower. Please note that payment of distributions out of capital effectively amounts to a return or withdrawal of the principal amount invested or of net capital gains attributable to that principal amount. Actual distribution of income, net capital gains and/or capital will be at the manager’s absolute discretion. Payments on dividends may result in a reduction of NAV per share of the funds. The preceding paragraph is only applicable if the fund intends to pay dividends/ distributions. Performance with preliminary charge (sales charge) is calculated on a NAV to NAV basis, net of 5% preliminary charge (initial sales charge). Unless stated otherwise data is as at previous month end.
Subscriptions may only be made on the basis of the latest prospectus and Product Highlights Sheet, and they can be obtained from WMS or fund distributors upon request.
This material may not be reproduced or distributed, in whole or in part, without the express written consent of Wellington Management.
You are about to enter a website intended for Singapore investors only. Any person unable to accept these terms and conditions should not proceed any further. Before making any investment decision, you shall read carefully the offering documents of each Fund (as defined below).
The use of https://www.wellington.com/en-sg/individual (this “Website”) is subject to the following terms and conditions (the “Terms”). After you have read and understood these Terms, you may click “Accept” to confirm that you agree to the Terms.
By clicking "Accept" you:
(i) expressly acknowledge that you have read and understood the Terms and agree to abide by them;
(ii) represent and warrant that the jurisdiction you have selected is the applicable jurisdiction for the intended investment activities, and that you are not resident in the United States of America and are not a U.S. Person;
(iii) confirm that you are accessing this Website in compliance with the laws and regulations of the jurisdiction you have selected, and all other applicable laws, rules and regulations;
(iv) represent and warrant, if applicable, that you are authorised to accept these Terms and use or access (or attempt to use or access) this Website on behalf of your employer, your client, or both, and that in doing so you are acting within the scope of your duties and, at all times, on behalf of your employer, your client or both;
and
(v) agree to the terms of our Privacy Policy as set out below in paragraph 17.
If you do not agree with these Terms you must refrain from using this Website.
In these Terms, references to “you” and “your” are references to any person using or accessing (or attempting to use or access) this Website. References to “Wellington Management”, “we” and “us” are references to Wellington Management Singapore Pte. Ltd.
By entering this Website, you acknowledge and agree to be bound by each of the following Terms, together with any additional terms and conditions that apply to individual webpages, documents or other attachments contained within this Website (together, the “Conditions of Use”). If there are any Conditions of Use that you do not understand or agree with, you must leave this Website or the webpage in question (as applicable) immediately and delete immediately from the memory of your computer all documents from this Website.
Effective as of 30th September 2021
Chart in Focus: Can this equity bull market last?
Can this current equity bull market last? In this latest edition of Chart in Focus, we focus on the indicators of whether it may come to an end or keep running.
Multiple authors