Irene Goh, deputy global head of multi-asset at fund manager abrdn, says that in an environment where traditional cash deposits may no longer suffice, a diversified approach to income generation is essential for investors, especially those seeking income to support their retirement.

“Equities can be a valuable source of income. Australian equities, in particular, offer an attractive yield spread compared to global equities, enhanced by the franking credit system of taxation. Additionally, global high dividend equities and fixed income assets can contribute to income solutions too.

According to Ms Goh, investors should be seeking stable and consistent income through diversified income sources across global equity, global bond and listed alternatives.

“Listed alternatives are important as they can provide access to differentiated income streams with lower dependency on economic trends. These may include infrastructure, specialist property, precious metals, royalties, renewable energy, and special opportunities.

“We maintain a flexible asset allocation to stay nimble on equities, and we remain positive on duration assets such as bonds, and we also believe that investors should diversify risk through listed alternatives such as listed infrastructure companies as the returns from cash investments fall as central banks cut interest rates,” she said.

Ms Goh’s base case is for a soft landing in 2025, characterised by moderating economic growth and inflation slowly returning to targets in developed countries, thus allowing central banks to lower interest rates even further this year.

“We expect the US Federal Reserve will cut rates two more times in 2025, beginning in September. Further cuts from the European Central Bank and the Bank of England are also likely later this year as economic growth slows.

“We have identified income opportunities which are less sensitive to economic cycles such as renewable energy and infrastructure assets which can deliver income and is often linked to inflation, and less susceptible to any downturn in the economic cycle,” she said.

Ms Goh says that combining diversified asset allocation with proprietary stress tests is the key to generating sustainable income while minimising downside exposure.

“By strategically allocating to alternative asset classes and employing active management techniques, retirees can aim to achieve a consistent and reliable income stream in a low-rate environment. It is essential for retirees to consider a diversified approach that goes beyond traditional cash deposits to secure their income needs in the current economic climate, especially with cash rates falling in Australia and elsewhere,” she said.

At its February meeting, the Reserve Bank of Australia (RBA) lowered the cash rate target to 4.10 per cent from 4.35 per cent. With interest rates on online savings accounts now typically yielding less than 2 per cent, this exposes many savers to very low returns.

“Compared to inflation at around 2.5 per cent in January 2024, returns on bank online savings accounts are substantially lower, and averaged just 1.75 per cent in January 2025, down from over 2 per cent a year ago. Bank one-year term deposits rates averaged a little more at 3.35 per cent per annum, well below around 4 per cent a year earlier, so the real return on cash deposits is negligible.

“In an environment, where inflation could reignite given Trump’s tariffs, and interest rates could fall further on savings accounts in 2025, investors should be cautious about investing too much in cash and instead diversify their exposures into other assets such as equities, bonds and alternatives which can deliver reliable income,” said Ms Goh.

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“Investors have been quite surprised with the resilience of the US economy holding up fairly well through the last few quarters, in spite of rapidly rising interest rates in the US and previously some stresses and pressure on commodity prices leading to high input prices.

“We’re starting to see some signs of cracks showing. But the gradual pace of economic activity decline means we’re looking at a mild recession in the US to evolve sometime in the middle of next year. And out in Europe and UK, one could reasonably argue these economies are already moving into recessionary conditions.

“In Australia similarly, we’re looking at inflation declining slower than expected and very much held up by still healthy demand for services. But growth is also moving along the same trajectory of seeing some slowdown, and housing markets stresses are starting to show up. Consumer spending is also softening out.

“What that all means in terms of policy rates is one should expect central banks around the world to keep policy on hold for a little while more, so higher for longer, and potentially for the Fed to start cutting rates around the middle of next year when a recession hard-landing sets in, and the second half of next year could see policy rates inching lower. That’s our central scenario and base case.

“At an asset class level, underweighting equities and being a bit more conservative on our equity holdings, will put us in good position to weather some of the upcoming potential pressure going into 2024. We have been slowly increasing our duration across most of our portfolios, although at a much more measured pace, in view of some of the technical developments and fiscal debt pressure that’s happening in the US bond and treasury markets.

“So, what we advocate in our portfolios and with investors is to increase the allocation to quality investments as well as to diversifying assets.

“In 2024 most developed market economies, including Australia, will start edging towards policy easing, as economic activity starts tapering off and declining. It’ll come through by way of a multi-speed scenarios. Europe and the UK will potentially lead the pack in rate cuts and rate easing to engineer a stimulus to support this recessionary hard-landing scenario, which should come through in the second quarter of next year.”

By Irene Goh, head of multi-asset investment solutions APAC & strategy

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Raf Choudhury

Global asset manager abrdn has announced it has hired an Investment Director to further strengthen its Australian Multi-Asset Investment Solutions (MAIS) offering for wholesale and institutional investors, financial advice groups and investment platforms.

abrdn has appointed Raf Choudhury to the newly created position where he will play a leading role in managing abrdn’s Australian multi asset funds (including the Multi-Asset Real Return Fund and Multi-Asset Income Fund) and its rapidly growing managed accounts capability. Raf will report to Irene Goh, Head of Multi-Asset Investment Solutions – Asia Pacific, and will be an important member of abrdn’s Asia-Pacific and Global MAIS teams.

Choudhury joins abrdn from State Street Global Advisors where he held a range of portfolio manager roles over a 17-year period in both the UK and Australia, and most recently was State Street’s Head of Investment Strategy & Research – Australia.

Irene Goh, Head of Multi-Asset Investment Solutions – Asia Pacific, abrdn, said: “We are extremely pleased to have Raf onboard to further our successes in Asia Pacific. This signifies our commitment to the business and clients in Australia with Raf driving the growth of abrdn’s multi asset investment capability locally. He will assume the portfolio lead for the Australian-based portfolios and managed accounts.

“The breadth of abrdn’s investment platform across public, alternative and private markets, coupled with digital, sustainability and investment solutions capabilities anchors our ability to provide customised cross-asset solutions to meet clients’ complex needs today. Raf will be instrumental in bringing these to the doorstep of our Australian clients and the investing community. We look forward to partnering with our clients in addressing their challenges.

“A key element of Raf’s responsibilities will also be contributing investment insights to the broader MAIS teams that should translate into successful portfolio strategies. With his experience, we look to Raf delivering valuable and sophisticated analytical research as well as investment strategies to the regional and global investment network. ”

Brett Jollie, Managing Director – Australia, abrdn, added: “This new role is a great example of abrdn investing in the Australian business. We have listened to our clients and acted to meet their needs.

“While Raf will be the Multi Asset business’ point person here in Australia, he will be backed by our large global team of more than 100 MAIS professionals who manage more than AU$83billion (US$61billion) in multi-asset investment strategies.

“Raf will also play an integral role in the development and further growth of our managed account capability. abrdn Australia currently has a suite of over 20 separately managed account solutions for financial advice licensees and advisers to tap into, and is a core growth pillar for the Australian business.”

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