Mid-Year Income Perspectives
Multi-Asset Solutions
Michael Schoenhaut, Mark Jackson
In brief
- The first six months of 2020 have witnessed unprecedented market volatility, with the global coronavirus pandemic sparking one of the sharpest global downturns on record, before markets staged a significant recovery on the back of massive fiscal and monetary policy stimulus.
- Income portfolios have faced particular challenges in the review period. Many of the parts of the market that income investors typically focus on—including high dividend equities (such as financials and real estate investment trusts), credit markets and preferred equity—have underperformed year to date.
- Despite these challenges, investors are likely to continue to seek out alternative sources of income within their portfolios, given yields on cash and government bonds are now set to remain low for some time to come.
- The end of the previous market cycle and the start of a new cycle is also bringing new opportunities in risk assets, with corporate earnings expected to begin to recover in the second half of the year and with valuations in some areas now looking more attractive.
- In equities, for example, the relative valuations of dividend paying securities compared to the broad market look more attractive than at any point since the global financial crisis. Credit—both investment grade and high yield—continues to be supported by central bank purchases.
- Given uncertain backdrop and the dispersion in valuations, active asset allocation and underlying security selection will continue to be crucial for investors looking to generate attractive income while maintaining a balanced risk profile.