Michael Allison, Equity Portfolio Manager at Eaton Vance, a global investment management firm, believes that diversification of income sources may help satisfy investor needs in today’s low- and negative-rate environment.
He says “ With headlines that call attention to the $9 trillion in global debt trading at negative yields, investors are right to be worried about finding sources of income without taking on too much risk. Given these concerns, we think investors should consider a diversity of income streams by utilizing a global, multi-asset class approach to income investing.
Indeed, finding engines of income around the world is a challenging endeavor, as the chart below shows. Central bank action, most notably in Japan and Europe, has resulted in negative interest rates to spur inflation and investment. But, as a result, absolute yields are near record lows and investors in search of income are forced to take on more risk.
We think this is where a global, multi-asset class approach can help. By looking at an array of income-producing securities and taking a flexible approach, investors may be able to navigate the challenges that face the traditional sources of income. A diversification of income sources may help satisfy investor needs. And a global approach broadens the potential universe from which to seek attractive investments.
For example, many dividend portfolios are heavily weighted with traditional income-paying sectors, such as real estate investment trusts (REITs), telecom, utilities and consumer staples. We think that investors should consider a greater diversity of income streams that includes other equity sectors (financials, health care, industrials and information technology, for example), while also augmenting the strategy with domestic and international high-yield corporate bonds and preferred stock.
Bottom line:
At the end of the day, it’s about generating income. We think the best way to accomplish this is through a diversified approach that looks globally for opportunities. By using many engines to generate income, we think investors may be able to overcome the challenges posed by today’s low- and negative-rate environment.
