Beating Low Yields by Diversifying Assets

Investors should not to put all their ‘eggs’ in one basket in order to beat the low yields on investments.

The call comes from asset management firm Schroder’s, which says that investors who put their money in one asset class not only ignore other potential lucrative opportunities, but also increase their risks.

They say that a benchmark-unconstrained multi-asset fund is flexible enough to find attractive yield wherever it might be found.

But, Schroder’s caution investors should look for quality fund managers to ensure their capital is not eroded and to ensure their investment brings a return.

A spokesman for the firm’s multi-asset investment arm, said: “While investing for income is not new there are new challenges for investors wanting to create a portfolio that has the right level of risk and income in what is a low growth, low yield and uncertain world.

Income investments drying up

“Investors are looking for income but the traditional investment routes are drying up and so now is the time to look for new opportunities.”

Investors have ‘traditionally’ looked to owning government bonds to earn income but these are no longer viable since they offer low yield.

Indeed, since 2007, government bond yields have dropped to levels not seen since the great depression in the 1930’s. This has been caused by the world’s central banks being committed to offering low cost finance in a bid to help the banking system repay debt without damaging economic growth.

The firm says it’s these low interest rates, risk aversion and the policy of quantitative easing, which sees the government printing money to buy assets – usually in government bonds – which has led to such low yields.

But this is a dilemma for many investors who are looking for higher yields to help fund future plans, such as retirement.

High yielding equities

The spokesman added: “Investors need to think about having a multi-asset approach to income since yields from traditional sources are falling and the risks to find income rising.

“As a result, investors should maximise their opportunities and diversify because single asset class risks have increased.”

Investors have traditionally headed for low risk investments which bring low yields but the current economic situation means that these same investment classes are now vulnerable to shocks which make them a risky investment to have.

It’s for this reason, say Schroder’s, that investors looking for income should diversify their portfolios and incorporate a range of investments offering a wide spread off risk to help protect their investment and generate income.

A wider range of asset classes to generate income should include the traditional government bonds but also higher yielding equities and bonds for emerging market and municipal debt – from around the world.

Leave a Comment