Generating income when yields are at historic lows is no longer as simple as investors believe it once was, he said.
A typical approach in Asia has been to focus on a split between Asian high-yield bonds and Asian dividend stocks, Pang said. However, the yield on offer is not commensurate with the volatility in these two asset classes.
Multi-asset class products with their wider diversification may help investors avoid the yield traps present in fixed income and equities.
“With a multi-asset approach, a similar yield is achieved with just under half the level of volatility.”
Asian high-yield bonds and Asian dividend stocks along with Japan REITs, global equities and fixed income and emerging market debt mean a wider diversification.
“It also demonstrates the benefits of the need to be unconstrained in your investment approach and how imperative it is to focus on higher quality securities that will grow and sustain income returns.”
With active asset allocation, these products can also help in managing currency risks.
The three Ds of income demand
Demographics, deleveraging and decelerating growth will drive the demand for income investments over the long term, he said.
With the decline in the working age population and increase in life expectancy in some key markets, the demand for consistent and sustainable income solutions will rise.
“The world’s demographic data is forcing investors to study the viability of income investing.”
“In 2000, the world had around 600 million people aged 60 or over. However, as longevity increases and former large and youthful populations start greying (think China) this number is set to surge to nearly 2 billion by the year 2050.”
Furthermore, if the long-term global growth trend is deceleration, earning a satisfactory return from capital gains will be hard and less predictable.
“In a low growth and low interest rate world, where the appetite for income is only growing, sustainable income investing, and the flexibility that accompanies it, will ensure it remains an important source of returns for years to come.”
