"A key focus for us is the sustainability of income, especially in the context of ensuring that we don’t erode our clients savings by chasing high but ultimately unsustainable yields or investing in companies that pay a high dividend but make a loss in terms of their share price performance."
Stephen Hay, multi-asset income fund manager at Baillie Gifford is another investor keen on high yield bonds; he says a climate of economic recovery at a time when government bond yields are still very low, “is just about ideal for high yield bonds.”
Sunil Krishnan, head of multi-asset at Aviva Investors believes the pain might be about to ease for multi-asset investors.
He says that with inflation becoming a factor in the economy for the first time in more than a decade, the chances are the yields on assets such as government bonds will rise, providing a fresh source of income for clients, though it may mean losses in capital terms for others.
Krishnan is wary of investing in high yield bonds as a source of income. He says: “The problem with those is, you get short periods of really excellent returns, followed by some decent returns, and then some terrible returns.
"The optimal time to buy those is just after the period of horrific returns, and that period is not now. I think in this climate, with the extra volatility in markets, the main thing is to have liquidity in terms of what you buy, and also price discovery (the ability to know what the sale price will be prior to the transaction completing), and that is not something you can be sure of with high yield bonds, so we have lately been selling those and buying more equities.”
Peter Vincent, head of investment solutions for EMEA at Franklin Templeton says investments in less liquid assets can be productive for longer-term clients with an income focus, as such investments tend to have traded cheaply to make up for the lack of liquidity. He says such assets do have short term bouts of volatility.
He says clients seeking income returns which are not correlated to wider equity markets should look to real estate and infrastructure funds, as those tend to have high yields.
Vincent is also keen on private equity funds as a source of income, but says those tend to perform much more like other equities, and so offer less diversification.
Property Perspectives
Phillip Matthews, who jointly runs the TB Wise Multi-Asset Income fund, is another investor keen on the outlook for property.
He says: “Property as an asset class bore the brunt of some of the worst Covid-induced volatility, as tenants refused to pay rent and the crisis highlighted pre-existing structural concerns.
