The enduring case for multi-asset income
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Article Type
Market Updates
Topic
Multi-Asset
Published
September 12, 2024
Read time
5 mins
Authors
Vincent McEntegart
Debbie King
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The Aegon Diversified Monthly Income Fund targets an income of 5% per annum^, distributed monthly. Our multi-asset approach blends bonds, equities, property and specialist income assets to meet this objective, while offering the potential to preserve and grow capital.

The Fund has been successfully delivering an average yield of over 5%* for over a decade, irrespective of the macro and market environment. Many corporate credits currently offer similar yields but it would be wrong to dismiss the attractions of a multi-asset approach to income investing.

 

Diversification and flexibility

A key benefit of a multi-asset income approach is diversification. Diversification of both risk and return which extends beyond bonds and equities. It includes actively managing currency exposures to reduce risk and enhance income. It includes alternatives which represent a genuinely differentiated investment opportunity. To maximise this, however, requires true flexibility. With wide investment parameters, no benchmark and no fixed allocation framework, the managers have freedom to adjust the portfolio in real time to find the best blend of income ideas for the prevailing investment environment.

As Chart 1 shows, we have used that flexibility to the full, with significant variation in our asset allocation over time. The material change in the last 24 months has been the increased opportunity offered by the re-pricing of bond markets in 2022, We rebalanced the portfolio to aid the risk profile while supporting income generation but, as spreads have narrowed, the allocation has fallen again.


Chart 1: Asset allocation ranges since inception (%)

Chart 1: Asset allocation ranges since inception (%)

Source: Aegon Asset Management as at 31 August 2024. Asset allocation ranges shown for Aegon Diversified Monthly Income Fund since inception on 25 February 2014.

 

Why now?

We are on the cusp of a potentially significant easing cycle with challenges ahead for income investors. This Fund is an ‘all-weather’ solution for income-seeking investors and the current environment presents a particularly compelling entry point.

1. An uncertain macro environment

There is still uncertainty around the macroeconomic environment but the direction of interest rates seems clear. The first cuts have been made in UK and Europe and Fed Chairman Powell was clear in his address to the Jackson Hole Symposium on 23 August; the US will follow. This has implications for income investors whose returns on cash and bonds will diminish once more. The Fund’s track record offers strong evidence of its ability to deliver a consistently attractive level of income irrespective of prevailing interest rates. Its flexibility to act quickly and without constraint will be valuable as the extent and pace of interest rate cuts becomes clear.

Chart 2: Consistent yield through cycle (%)

Chart 2: Consistent yield through cycle (%)

Source: Bloomberg and Aegon Asset Management as at 31 August 2024. Yields shown from 30 September 2016 (when Bloomberg Global Corporate Aggregate launched) to 31 August 2024 in GBP for: MSCI World Dividend 12 Month Yield; Bloomberg Global Corporate Aggregate Yield to Worst; UK 2 year Gilt yield; and Aegon Diversified Monthly Income Fund 12mth rolling historic yield.

2. Diverse opportunity set

The opportunity-set for income investors still looks attractive across multiple asset classes but bond yields have begun to fall and credit spreads are relatively tight. The Fund’s fixed income allocation recognises this, taking profits in recent months on the historically high allocation built through 2023. The Fund remains alive to risks and opportunities across the credit spectrum and in default rates and duration.


The changing income environment has allowed for greater exposure to lower-yielding assets within the portfolio. Growth equities have contributed strongly to total return and may continue to do so but there are also opportunities in stocks paying healthy and expanding dividends. Equity distributions are growing, and we see income-focused names becoming more important as market breadth improves.


Finally, valuations on many alternative assets have been discounting earnings pressure which may not transpire as rates fall. The economy is slowing but the ‘landing’ appears soft at worst so far. 

 

Summary

The changing income environment demands a truly flexible multi-asset solution. As such, we believe the Aegon Diversified Monthly Income Fund is well-placed to continue to deliver an attractive risk-adjusted return for investors and the income objective it has delivered since launch over a decade ago.

 
 
 
 

^Income is not guaranteed and 5% is a target yield, being the fund's target total distribution over the next 12 months as a percentage of the current mid-market share price. The target yield may be revised in future.


*Source: Aegon Asset Management UK, as at 1 September 2024. Aegon Diversified Monthly Income Fund B Inc share class average of historic yield since inception. The Fund launched on 25 February 2014.

Disclosures

Authors

Vincent McEntegart
Investment Manager

Vincent McEntegart, investment manager, is a member of the multi-asset group. He is co-manager of the Diversified Income mutual funds and of our multi asset white label product offerings. 

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Debbie King
Portfolio Manager

Debbie King, investment manager, is a member of the multi-asset group. She is the co-manager of the Diversified Monthly Income fund and co-manages our multi asset white label product offerings. 

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