Finding sustainable income in uncertain times

Sponsored by COLUMBIA THREADNEEDLE INVESTMENTS

Is there an optimal combination of equities and fixed income to deliver strong, sustainable income?

Maya Bhandari, Columbia Threadneedle Investments

In an environment where yields across many asset classes are low, extracting natural income from traditional sources has become increasingly challenging. Yet the importance of investing for income has not diminished; if anything, demographic developments have raised their appeal.

Ultimately, investors want to achieve an attractive and sustainable level of income. Equities, while delivering good income, have high volatility; “old school” duration offers an altogether unappealing combination of poor income and total return prospects. Income-seeking investors must face these challenges head-on.

At Columbia Threadneedle we believe there is a way to achieve strong levels of income without taking on unnecessary risk, utilising a dynamic investment approach. With a focus on diversification, the right blend of income-generating assets across global equities and fixed income markets can be combined with the aim of achieving a strong and sustainable level of income, irrespective of the global macro environment.

Source: Morningstar, as at 31 August 2018. Based on 5 years annualized data. Global Equities represented by MSCI AC World Index. European Equity represented by MSCI Europe Index. Global Bonds represented by JP Morgan GBI Global Traded Index. High Yield represented by ICE BofA Merrill Lynch Global High Yield Index. All data expressed in USD terms. 60/40 portfolio as a proxy for a global multi asset-income strategy for illustrative purpose only.

 

According to Maya Bhandari, portfolio manager on the multi-asset team at Columbia Threadneedle Investments, this strategy can play a critical role in helping investors take advantage of income opportunities as they present themselves but also to protect capital when threats appear on the horizon.

“In a market where yields across many asset classes are low, well-managed global multi-asset income portfolios can provide an effective solution for investors seeking a strong and sustainable level of income, whilst keeping volatility in check,” Bhandari explained.

“Asset allocation is central to what we do as an organisation, and by using a robust and repeatable investment process we have been able to deliver and even exceed  our clients’ objectives in recent years.”

 

A globally-diversified approach 

A combination of flexibility and active management lies behind the approach of the Columbia Threadneedle (Lux) Global Multi Asset Income Fund in its quest to provide investors with a strong level of income while keeping volatility below that of an equities-only portfolio.

“The flexiblity in the Threadneedle (Lux) Global Multi Asset Income Fund manifests itself in two ways,” said Bhandari. “The first is the fund’s mandate to derive income from three diversified sources: equities, fixed income and the sale of covered equity call options. The second is by taking advantage of a truly global opportunity set to flex the mix of those sources as market conditions dictate.”

The fund benefits from active return sources at both the top-down asset allocation and bottom-up security selection levels. The principle of high-but-sustainable-income is apparent in the companies in which we invest, where we look not only for a high dividend yield but also a strong growth outlook and a robust balance sheet.

“We want a company’s leverage to be under 0.75, dividend cover to be 1.25 or more, and we look for companies growing both the dividends and earnings by 5% a year or more.”

Encouragingly, each of the three sources of income has contributed approximately equally since the inception of the Threadneedle (Lux) Global Multi Asset Income Fund. But each has stepped up at different times, demonstrating the benefits of a diversified approach to navigate uncertain markets.

 

Total return mindset

The fund aims to balance the need for income with longer-term capital appreciation is key to the strategy. We avoid the temptation to pay out headline-grabbing dividends, instead limiting the annual income distributions to 6%. Historically, we have not paid income from capital.

Since the inception of the Global Multi Asset Income Fund, we have delivered attractive and consistent levels of income, as well as growing capital, with around half the volatility of global equities.

Looking ahead, there are risks aplenty on the horizon. We believe that a dynamically managed multi-asset strategy is best placed to navigate this terrain to deliver investors with attractive levels of income and capital growth, in a risk-controlled manner.

Source: Columbia Threadneedle Investments

Important Information:
Notice to Investors in Hong Kong: This fund is not authorized in Hong Kong.  Strictly for professional investors only. Not for distribution to retail investors. The contents of this document have not been reviewed by any regulatory authority in Hong Kong (“HK”).  You are advised to exercise caution in relation to the information presented herein. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.  This document has not been registered by the Registrar of Companies in HK.
Any funds mentioned herein have not been authorised by the Securities and Futures Commission pursuant to the Securities and Futures Ordinance of Hong Kong (the “Ordinance”).  Accordingly, the funds may only be offered or sold in HK to persons who are “professional investors” as defined in the Ordinance and any rules made under the Ordinance or in circumstances which are permitted under the Companies (Winding Up and Miscellaneous Provisions) Ordinance of Hong Kong and the Ordinance. In addition, this document may not be issued or possessed for the purposes of issue, whether in HK or elsewhere, and the funds may not be disposed of to any person unless such person is outside HK, such person is a “professional investor” as defined in the Ordinance and any rules made under the Ordinance or as otherwise may be permitted by the Ordinance.
This document does not constitute investment advice and is issued without regard to specific investment objectives or the financial situation of any particular recipient.  This material in this publication is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments to anyone in any jurisdiction in which such offer is not authorised, or to provide investment advice or services. Investors are advised to read and understand the contents of the Prospectus before investing. This publication has been prepared without taking into account the objectives, financial situation or needs of any particular person. Before making an investment decision to hold or continue to hold units in the fund you should consider, with the assistance of a financial or other professional adviser, whether the investment is appropriate in light of those circumstances. In the event an investor chooses not to seek advice from a financial adviser, the investor should consider whether the fund is suitable for him.
Past performance of the fund and its manager and any forecasts or information on the economic trends are not necessarily indicative of the future or likely performance of the fund or its manager or a guarantee of future trends. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. The fund may invest in financial derivative instruments to the extent permitted under relevant laws. As such, it may experience greater volatility in its net asset value.  Further details are available in the Prospectus. The research and analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.
This document includes forward looking statements, including projections of future economic and financial conditions.  None of Columbia Threadneedle Investments, its directors, officers or employees make any representation, warranty, guaranty, or other assurance that any of these forward looking statements will prove to be accurate.  The mention of any specific shares or bonds should not be taken as a recommendation to deal.This document and its contents are proprietary. It may not be reproduced in any form or passed on to any third party without the express written permission of Columbia Threadneedle Investments.
Threadneedle (Lux) is an investment company with variable capital (Société d’investissement à capital variable, or “SICAV”) formed under the laws of the Grand Duchy of Luxembourg. The SICAV issues, redeems and exchanges shares of different classes, which are listed on the Luxembourg Stock Exchange. The management company of the SICAV is Threadneedle Management Luxembourg S.A, who is advised by Threadneedle Asset Management Ltd. and/or selected sub-advisors. The SICAV has appointed State Street Bank and Trust Company, Singapore Branch as its Singapore representative and agent for service of process in Singapore.Subscriptions to a fund may only be made on the basis of the Offering Documents as well as the latest annual or interim reports and the applicable terms & conditions. Please refer to the ‘Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this fund.
The above documents can be obtained free of charge on request from any appointed distributors or our website at www.columbiathreadneedle.sg Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519. Regulated in Singapore by the Monetary Authority of Singapore(“MAS”) under the Securities and Futures Act (Chapter 289) (“SFA”). Registration number: 201101559W. This document is not a prospectus as defined in the SFA. Accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

Tags:

Leave a Reply