Interest rates have been on a 30-year downward trend and generally remain close to their record lows. At the same time, inflation rates in most industrialized nations are slightly above the yields of government bonds and are starting to trend higher. For traditional fixed-income portfolios, this is slowly leading to an erosion of assets. Investors are therefore well advised to broaden their investment spectrum.
Much greater flexibility
Government bonds are considered the standard investment segment for income-oriented investors, but they are by no means the only or currently even the most attractive proposition. Credit strategies offer a yield pickup over top-grade government bonds. High-interest and emerging-market bonds in turn offer a higher interest coupon and corresponding cushion against rising interest rates.
A further recurring income flow comes from equities with high dividends. Typically, high-quality companies with relatively low-risk business models are able to pay decent and sustainable dividends. In addition, in the past, their shares corrected less sharply than the overall market during market dips. With this expanded opportunity set, the chances of attaining an attractive level of income rise substantially while, in a global and well diversified portfolio, risks increase only moderately.
Advantages of a flexible approach
Investments in various attractive yield sources
Broad and global diversification and risk