Positioning for yield in time for a global restart
As liquidity conditions improved, our portfolio manager shares how we are positioned for income opportunities across asset classes.
Navigating the current investment landscape is very much like working out to keep your body healthy. How, what and when to do certain exercises to stay healthy could be similar to investing and staying invested as market conditions evolve.
You may find that amid uncertain markets, it is still possible to find consistent yields1 with relatively lower volatility. Instead of focusing on a single asset class, investing across different markets and sectors could help investors, based on their objectives and risk appetite, seek a diversified2 pool of income opportunities that have low or negative correlation.
A diversified2 income strategy could be likened to working out at a gym. We share our analogy.
For example, as part of an allocation within a single asset class such as fixed income, US securitised debt could be considered to seek diversification2. Securitised assets have been less impacted by geopolitical events and trade tensions compared with other sectors such as corporate credit3.
Agency mortgage-backed securities3 (agency MBS) are a type of securitised debt which could help build portfolio resilience from an allocation perspective. Like US Treasuries, agency MBS historically4 exhibited a similar, if not, lower volatility profile. Perceived to have direct or implicit backing from the US government, agency MBS may carry relatively less credit risk which is translated into the slight yield premium it can offer versus US Treasuries. The 12-month rolling average yield of US MBS was about 2.6% as of the end-February 2020, compared with 1.7% of US Treasuries4.
Read more about our Investment Ideas on Managing Volatility.
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Market volatility and lower yields are here to stay. Investors, based on their investment objectives and risk appetite, could consider diversifying2 across different income sources to broaden the potential for more yield1 opportunities and to help manage portfolio risk.