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Better income – Aim for higher, not the highest

9 August 2024

1. I am looking for a higher and stable income outcome, so why isn’t a high-income orientated portfolio necessarily better? Why shouldn’t I consider the highest-yielding assets?

Why higher but not highest? We believe it’s far better to consider the investment cycle of an income investment, i.e., from income generation/yields to total returns. If we focus too much on chasing the highest yield and upfront yield generation, we could suffer from early capital depletion and miss the total return opportunity towards the later stages of the investment journey. Furthermore, higher yielding assets may also translate to higher risk exposures.

Investors should have a complete and thorough view of a particular income investment's risk profile and underlying exposure to realise a stable income while making their capital last as long as possible. A “high” income is simply a hook to attract investors; investors should approach with caution given some product construction highlight a high headline yield outcome a whilst under the hook, a high percentage of that income generation could unnaturally be paid out from capital, relying on capital appreciation of growth assets such as equities to achieve the distribution.

2. How can Manulife Investment Management (Manulife IM) achieve a “Better Income”, and what solutions do you offer?

Manulife Investment Management has a high conviction towards income investing which we believe will remain relevant into 2024 and beyond. Manulife IM provides a range of income solutions from fixed-income investing to multi-asset investing. These solutions span traditional fixed income, alternative income, equity income and multi-asset income. Furthermore, with active asset allocation, we can harvest the optimal income level for you by considering the balance of risk – we believe that not all yields are born equal; therefore, we do not simply chase yields. Instead, we focus on returns per unit of risk (Sharpe ratio) and generating stable, sustainable and consistent yields through investing across a diversified range of traditional and non-traditional income sources.

In addition, we’d like to advocate an income portfolio concept, i.e. allocating a portion of cash savings to higher-yielding income funds/solutions without taking excessive risks. Asian investors who have been too conservative (by just sitting on bank deposits or US treasuries) or too aggressive (by concentrating on the highest-yielding income funds) should seek to rethink their income portfolio strategy by diversifying a portion of their assets towards alternative/higher-yielding income funds that are, in many ways, complementary to existing holdings.

 

Read more:

 

Better income – Preferred securities

 

Better income – Global multi-asset diversified income

 


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