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The universe for yield has shrunk, what can an income investor do?

- Contributed by BlackRock Global Funds
14 February 2020
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The case for global, unconstrained income portfolios in a low-rate, volatile world:

After years of steadily rising interest rates, commencing in 2015 and peaking in 2018, rates have once again collapsed globally. Less than a quarter of major global fixed income markets today yield over 4% today. Even more worrisome, USD$14T in bonds globally now have a negative yield. Many factors have contributed to this dynamic; an aggressive dovish pivot by central banks in 2019, rising trade tensions and recessionary fears have been some of the recent causes. However, there are other longer–term forces at play like a global savings glut and aging populations. Ultimately, 2019 and the early parts of 2020 have served as stark reminder that this low yield environment may be more persistent than initially thought.

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What's an income investor to do in a world where hiding out in cash now comes with a real cost and stretching for yield later in an economic cycle could be equally, if not more, damaging?

While it's clear generating income and returns while mitigating volatility will be a challenge going forward, we believe there are a few simple, yet important principles to remember that can help you navigate today's markets:

1. No one asset class can solve today's income challenge:

With negative government bond yields came the disappearance of an asset class that once provided investors both income and capital preservation. That simply does not exist today. Investors need to broaden their opportunity set. Searching beyond traditional bond markets has its risk, but we believe if done properly investors can achieve both higher income and portfolio diversification.

2. What works today may not work tomorrow, be flexible:

A wide opportunity set isn't enough. Investors must be willing to adapt to changing markets and adjust risk and exposures accordingly. A look back at the last two years provides a clear example of this. Asset classes that underperformed in 2018 were some of the best performers in 2019.

3. Take risk in a well–defined framework:

Risk management has always been critical. But today's mix of low yields and uncertain policy risk globally requires an even closer eye towards risk. Defining risk parameters (i.e. risk budgets) can help investors avoid unintended outcomes. We believe at BlackRock that risks should be deliberate, diversified and appropriately scaled.

These principles serve as the backbone of our investment process inside the BGF Global Multi-Asset Income and BGF Dynamic High Income strategies. We designed our portfolios with this challenging backdrop in mind and seek to provide investors with options for achieving their income goals within a risk profile that bests suit them.

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What's BlackRock's edge?

With USD$7.43T under management, BlackRock has investment expertise in virtually every asset class globally*. We make it a priority to utilize this massive scale and deep expertise across our strategies. These principles serve as the backbone of our investment process across the USD$34B we manage in global income strategies*, including the BGF Global Multi–Asset Income and BGF Dynamic High Income Funds. We designed our portfolios with this challenging backdrop in mind and seek to provide investors with options for achieving their income goals with a risk profile that best suits them. Additionally, on a daily basis, we utilize BlackRock's industry leading risk–management platform (Aladdin®) and group (Risk and Quantitative Analytics – RQA) to measure and manage risks, including stress testing our portfolios for new potential market shocks. Our edge lies simply in leveraging the vast resources and insights of the world's largest asset manager.

Our edge lies simply in leveraging the vast resources and insights of the world's largest asset manager.

Find out more about the BGF Global Multi–Asset Income fund and the BGF Dynamic High Income fund by clicking on their respective brochures.



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Important Disclaimer

*Source: BlackRock, as at end December 2019. Subject to Change.

In Singapore, this material is issued by BlackRock (Singapore) Limited (company registration number: 200010143N). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. The Fund mentioned in this material is a Fund of BlackRock Global Funds.

Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Investors may not get back the amount they invest. Changes in the rates of exchange between currencies may cause the value of investments to go up and down. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time. The Fund may use or invest in financial derivatives. The above warnings are explained in greater detail in the fund specific risks in the current BGF Singapore Prospectus and you should read them before investing. This document is for informational purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock Group funds and has not been prepared in connection with any such offer. Subject to the express requirements of any client specific investment management agreement or relating to the management of a fund, we will not provide notice of any changes to our personnel, structure, policies, process, objectives or, without limitation, any other matter contained in this document.

BlackRock Global Funds (BGF) is an open–ended investment company established in Luxembourg which is available for sale in certain jurisdictions only. BGF is not available for sale in the U.S. or to U.S. persons. Product information concerning BGF should not be published in the U.S. BGF has appointed BlackRock (Singapore) Limited as its Singapore representative and agent for service of process. Subscriptions in BGF are valid only if made on the basis of the current Prospectus and the most recent financial reports which are available on our website www.blackrock.com.sg.

Investors may wish to seek advice from a financial adviser regarding the suitability of the Fund before making a commitment to purchase units in the Fund. In the event an investor chooses not to do so, the investor should consider whether the Fund is suitable for him.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are for illustrative purpose only. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

Unless otherwise specified, all information contained in this document is current as at date of material unless stated otherwise.

No part of this material may be reproduced, stored in retrieval system or transmitted in any form or by any means, electronic, mechanical, recording or otherwise, without the prior written consent of BlackRock.

©2020 BlackRock, Inc., All Right Reserved.


Disclaimer

All information here is for GENERAL INFORMATION only and does not take into account the specific investment objectives, financial situation or needs of any specific person or groups of persons. Prospective investors are advised to read a fund prospectus carefully before applying for any shares/units in unit trusts. The value of the units and the income from them may fall as well as rise. Unit trusts are subject to investment risks, including the possible loss of the principal amount invested. Investors investing in funds denominated in non-local currencies should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance. dollarDEX is affiliated with Aviva but dollarDEX does not receive any preferential rates for Aviva products as a result of this relationship. Unit trusts are not bank deposits nor are they guaranteed or insured by dollarDEX. Some unit trusts may not be offered to citizens of certain countries such as United States. Information obtained from third party sources have not been verified and we do not represent or warrant its accuracy, correctness or completeness. We bear no responsibility or liability for any error, omission or inaccuracy or for any loss or damage suffered by you or a third party (including indirect, consequential or incidental damages) arising in any way from relying on this information.

This information does not constitute an offer or solicitation of an offer to buy or sell any shares/units.
This article has not been reviewed by the Monetary Authority of Singapore.

Information is correct as of 14/02/2020.