As conventional market areas become increasingly complex, investors have to "rethink key assumptions" about asset allocation in income investing, according to strategists at JP Morgan Asset Management (JPMAM).
According to JPMAM global markets strategist, Dan Morris, yields on traditional income investments such as cash are "no longer keeping pace with inflation".
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The asset manager highlights global high yield bonds, developed and emerging market equities, emerging market debt, mortgages, convertible bonds, global REITs and preferred equities as asset classes outside of European fixed income that could be worth looking at.
In many parts of the developed world, real interest rates have been pushed to the negative as European core government bond yields are experiencing historic lows owing to the loose monetary policy of the world’s central banks, and the flight to safe havens during the Eurozone debt crisis.
Income investors have started to move into riskier assets, as a result, by moving down the credit spectrum into lower quality, higher-yielding bonds, which allows them to take on more credit and interest rate risk "than they may have normally been comfortable with", JPMAM adds.
JPM Multi-Asset Income client portfolio manager, Olivia Mayell, says income investors have to "broaden their horizons" to include non-traditional types of fixed income and other investments that offer some protection against rising interest rates.
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By GlobalData"Taking an actively managed, flexible asset allocation approach to bring together the best risk-adjusted sources of income globally would be a more dynamic way to counter today’s income challenged environment," said Mayell.
