Demographic challenges, increased regulation, and the Public Debt Mountain, are fueling investor demand for assets that provide income; thus converting income strategies into the most affordable way to cope with mortgage payments or health insurance, and supplement public pensions.
This market trend is increasingly clear to the team at Pioneer Investments, which presented the panel, 'A Need for Income in Today's Economic Environment' at the investment seminar "Embrace New Sources of Return", which was held in Miami. Both Adam MacNulty, CFA, Senior Client Portfolio Manager of Pioneer Funds – Global Multi-Asset Target Income, and Piergaetano Iaccarino, Head of Thematic Equity and Portfolio Manager of Pioneer Funds – Global Equity Target Income shared their expert views in the series of panelist questions.
Despite the increased demand for income, Pioneer Investments believes that many investors’ conservative portfolio exposures may not be positioned to cope with the income need.
“We believe that investors face multiple concerns over time, but on top of the list is the need to generate income on a sustainable basis. In our opinion secular trends, such as an ageing demographic, public debt and increased regulation, which by definition are beyond the realm of the economic cycle, will shape the outlook and behavior of investors, by continuing to drive the demand for income,” company experts point out.
In the current environment of low interest rates and low returns of sovereign debt making it more difficult to draw income from traditional assets, Adam Mac Nulty, recommended looking beyond traditional sources, such as the U.S. stock market, the European stock market or U.S. Treasuries. In their search for sustainable income, the company intends to explore the U.S. high yield market, European high dividend equities, or REITs.
The key is to maintain a low volatility target, between 5 and 10%, and at the same time diversify among poorly correlated assets to keep the risk toward the downside. The Global Multi-Asset Income Target strategy seeks to deliver these goals.
Meanwhile, Piergaetano Iaccarino, also pointed out that one of the keys to attracting income to the portfolio is to be flexible in asset allocation. Thus, the Pioneer Investments team effectively attenuates falls in volatile markets.
In Global Equity Target Income fund’s case, Iaccarino explained that its portfolio has 80% of core positions and 20% of tactical positions which vary according to the strategy’s requirements and market conditions. Thus, the expert from Pioneer achieves flexibility and dynamism, which are crucial in finding assets that provide income. This portfolio construction enables potential for high income in a stable portfolio.