Issue date: 2021-12-31
Less than 20% of fixed income assets yield over 4%1
% of fixed income assets yielding over 4%
With traditional fixed income yields typically lower than pre-crisis level2, finding attractive income is no longer as easy as it once was.
Yields have moved up in many asset classes but remain low on government bonds2
Moreover, investors have substantially increased their allocations to traditional income producing asset classes. As these spaces become more crowded, investors will need to diversify further to get the yields they seek.
Broaden your income sources
Investing in a flexible portfolio focused on complementary income sources could help obtain consistent, diversified high income and attractive total return.
Complementary income sources tend to have low or negative correlation to traditional income sources4. It also has the potential to diversify investment, and difficult for retail investors to access
Flexibility to adapt to changing market conditions
No single asset class can provide income consistently. Against a backdrop of increased market volatility, it is becoming more critical for investors to diversify their income exposures.
1Source: BlackRock Investment Institute, Barclays and Thomson Reuters, December 2020.
2Source: BlackRock, Morningstar and Bloomberg. As of 31/12/2020. Fixed income yields represented by yield-to-worst, equity yields by 12 month dividend yield, Cash: US Dollar 3m Deposit Middle Rate. German Bunds yield: Benchmark 10Y German Bund. US Treasuries: Barclays US Treasury 7-10 Yr. Global Inv Grade Credit: Barclays Global Agg Corporate (USD). High Yield Bonds: US HY Barclays US HY 2% Issuer Cap. Global EM Equities: MSCI Emerging Market. MSCI World Equities: MSCI World. Global Dividend: MSCI World High Div Yield. REITs: FTSE NAREIT All REITs Index. EM Debt: JPM EMBI Global. Preferred Stock: iShares S&P US Pf.Stk. Idx.Fd. Yield for Preferred Stock is trailing 12-month yield of iShares US Preferred Stock Index ETF (PFF). Bank Loans: S&P/LSTA Leveraged Loan Index.
Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.
3Source: BlackRock, as of December 2020. Past performance is no guarantee of future results. Not a recommendation to buy or sell. For illustrative purposes only. Subject to change. There is no guarantee that the target will be met. Assumptions on which targets were calculated may not materialise.
4Source: BlackRock as at end October 2020. Correlations based on select underlying sleeves within BGF Dynamic High Income Fund using the BlackRock DLY risk model data (252 daily observations with a 40 day half life). Global Bonds refers to Barclays Global Agg (USD Hedged); Global Equity refers to MSCI World. Correlation ranges from +1 (perfect positive correlation) to -1 (perfect negative correlation). Index performance is for illustrative purpose only. Investor cannot invest directly into the index.
In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
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