Income Investing

Multi Asset Income strategies invest across multiple asset classes to generate recurring distributions. Rather than relying on a single source of income, a Multi Asset Income fund combines dividend-paying equities, bonds of different credit qualities, real-asset exposures or alternative return drivers that contribute ongoing cashflows. This broad diversification reduces the dependency on individual components and typically lowers portfolio volatility. As a result, investors benefit from a more stable overall return profile compared with strategies focused on just one asset class.

A common misconception is that an Income strategy must primarily rely on traditional dividend stocks. While dividend-oriented equities provide regular payouts, these stocks usually drop by the amount of the dividend on the ex-dividend date. Without sufficient price appreciation, this leads to a de-facto return of capital. A sustainable income approach avoids such capital erosion by not depending exclusively on a single income source. What matters is a total-return mindset: in addition to dividends and bond coupons, all return components of the capital market are used, including capital gains.

Equally important is risk diversification. Successful Income funds draw from a wide set of income drivers to generate consistent distributions. A broad allocation stabilises both income streams and portfolio behaviour. Pure dividend strategies, by contrast, are often unbalanced and therefore carry notable concentration risks. Typical weaknesses of dividend-only concepts include:

• Limited investment universe: A single-asset approach (e.g. equities only) exposes the entire portfolio to drawdowns if that asset class weakens.
• Regional concentration: Many dividend strategies overweight Europe, as European companies tend to pay higher dividends. If European markets lag behind the US, income potential suffers.
• Underexposure to growth sectors: Technology companies typically reinvest earnings rather than pay dividends. Dividend-heavy portfolios tend to be structurally underweight in tech, thereby missing long-term growth potential. Share buybacks, which have a similar performance effect from an Income investor’s perspective, are often insufficiently considered.

Multi Asset Income strategies address these shortcomings by diversifying globally and across asset classes. As a result, income does not rely solely on equities but may also include high-yield bonds, emerging-market debt or alternative income sources such as long/short strategies, volatility premia, real-estate investment trusts or insurance-linked securities. This breadth allows the advantages of true diversification to fully unfold. The result is a more stable income profile at moderate risk — one of the key reasons why Multi Asset strategies are valued by discerning investors.

Corporate bonds are a cornerstone of Income strategies because they provide reliable coupon payments. These securities are issued by companies and typically offer higher yields than government bonds, as investors are compensated for taking on credit risk — the risk that an issuer may not meet its obligations. For Income investors, bonds of financially sound companies are especially attractive, as they deliver predictable income and tend to behave steadily within a diversified portfolio.

Subordinated bonds form a specific subset of corporate bonds with a lower ranking in the capital structure. In the event of an issuer default, subordinated bondholders are paid only after senior creditors. As compensation for this additional risk, subordinated bonds offer higher coupons and yields, which explains their broad use in Income portfolios. Examples include hybrid bonds issued by large corporations or bank subordinated debt such as CoCo bonds.

CoCo bonds (Contingent Convertible Bonds) are bank-issued hybrid instruments that can convert into equity or be written down if predetermined conditions are triggered — for example, if a bank’s capital ratio falls below a regulatory threshold. Subordinated bonds therefore function as hybrid capital, combining characteristics of both debt and equity.

In an Income portfolio, corporate and subordinated bonds considerably enhance income potential. High-quality corporate hybrids (subordinated bonds issued by financially strong industrial companies) typically offer an additional two to four percentage points of yield per year compared with standard corporate bonds. As a result, they act as structural return drivers within the bond segment. At the same time, their price and credit risk remain manageable if issuer selection is rigorous. Many hybrid bonds come from Investment Grade companies that historically show very low default rates.

However, higher yields always come with higher risks. Credit and default risks must be actively managed, particularly in the case of CoCo bonds, which are often accessed through specialised funds. Another key factor is diversification within the bond allocation. Because the maximum return of a bond is limited to coupon payments and redemption value, losses from a single default cannot be offset by outsized gains elsewhere — unlike equities. Therefore, an Income fund must avoid excessive exposure to individual issuers and spread its holdings broadly. This diversification helps smooth the income profile and limits the impact should an issuer encounter financial difficulties.

Overall, corporate bonds provide stable interest income, while subordinated bonds add meaningful excess yield. Together, they form essential building blocks of any Income strategy aiming for stability and predictable distributions.

Alongside dividends and interest payments, volatility premiums can serve as an additional source of income. Volatility premiums arise when investors sell market volatility and effectively act as insurers. In practice, this is often achieved through the systematic selling of options or volatility derivatives. Because the level of implied volatility embedded in option prices is typically higher than the realised volatility that later occurs, option sellers can earn the difference as a recurring premium. This mechanism is similar to the premium income of an insurance company and is therefore referred to as a volatility risk premium.

Volatility Income strategies aim to generate these premiums on a continuous basis. A common example is a strategy that regularly sells put options on major equity indices and retains the premiums as long as markets remain stable. Historically, implied volatility — the market’s expectation of future price swings — has been structurally higher than realised volatility, creating a persistent source of potential income.

However, these strategies require disciplined risk management. Volatility premiums are not a one-way street, nor do they replace traditional diversification during market stress. Short-volatility positions (those that benefit from calm markets) can experience sizeable losses when volatility spikes suddenly, such as during market disruptions. Experts therefore emphasise that short-volatility exposure is primarily a source of income, not a portfolio hedge, and must be managed accordingly.

By limiting position sizes, diversifying across markets, and — where appropriate — incorporating protective long-volatility elements, the risks of these strategies can be controlled. Some specialised funds combine volatility premiums from several markets, balancing both long and short exposures to achieve more robust outcomes.

The result: Volatility strategies can meaningfully enhance an Income portfolio, offering independent return streams that do not rely on dividends or interest payments and thereby support a more resilient overall cashflow profile.

Aligning an Income strategy with long-term capital preservation is a key priority for many investors — particularly retirees, foundations, or anyone who depends on their portfolio for ongoing distributions. The goal is clear: Generate regular income without eroding the underlying capital over time. Achieving this balance requires careful planning, disciplined portfolio construction, and a sustainable approach to payouts.

The first step is setting a realistic withdrawal level. Distributions must be earned sustainably through the portfolio’s income sources. If a fund pays out more than it generates in returns, the principal will inevitably be drawn down. Professional Income strategies therefore aim to calibrate their payout levels so that interest, dividends, and premium income cover the distributions. In years with excess returns, reserves can be built to cushion weaker periods.

Inflation protection is equally important. Rising prices reduce the purchasing power of income payments and effectively act as an invisible form of capital erosion. A well-designed Income strategy incorporates inflation-resilient components — for example, inflation-linked bonds, commodities, selected subordinated bonds, or equity exposure, as equities can offset inflation through long-term price appreciation. At the same time, equities on their own are often too volatile for strategies whose primary objective is steady capital preservation.

The key lies in the right balance. A conservative or balanced Multi Asset portfolio is typically best positioned to combine inflation protection, stable income, and capital stability. Such a portfolio includes enough growth-oriented assets (such as equities) to preserve purchasing power, but also enough defensive income-generating components (such as bonds or commodities) to mitigate losses during periods of market turbulence.

Diversification also plays a central role in capital preservation. Investors who draw from a broad set of income sources — dividends, interest, rental income, and volatility premiums — are less dependent on selling parts of the portfolio during market stress. This helps protect the capital base so it can continue generating returns. In other words: a sustainable Income strategy avoids systematically consuming its principal.

Thoughtful rebalancing and reinvesting excess income further support capital preservation. Over time, the capital base can even grow while still providing ongoing distributions — provided the strategy is well diversified, risk-controlled, and consistently managed.

The prospect of generating a steady and predictable cash flow is one of the main reasons why Income Investing is so appealing. Experience shows that well-structured Income portfolios can deliver stable distributions over many years — provided they are managed professionally and follow a disciplined, diversified approach. Many retirees rely on Income funds to support their living expenses, and investors seeking passive supplementary income also turn to these strategies. Regular distributions can feel like a "second paycheque", offering welcome planning security.

However, the reliability of the cash flow depends entirely on the quality of the underlying strategy. An Income fund is not automatically resilient just because it distributes income. What matters is the fund’s risk profile, the breadth of its diversification, and the flexibility of its management. A strategy that relies solely on high-dividend equities or solely on the traditional equity-bond mix can face significant drawdowns in challenging market phases — which may force distribution cuts.

By contrast, broadly diversified Multi Asset Income strategies have historically delivered far more consistent income patterns. Because they combine many independent cash-flow sources, a decline in one area (such as equity dividends during market drawdowns) can often be offset by other components in the portfolio.

Active management also plays a crucial role. To maintain a reliable cash flow, experienced portfolio managers adjust allocations continuously as market conditions evolve. When yields rise, they may shift towards more attractive bonds, assuming the fund structure allows for flexible allocation (keyword: benchmark independence). In low-yield environments, they may increase exposure to alternative premium strategies or hold liquidity to protect the income target. Risk metrics such as volatility or maximum drawdown provide guidance on whether the portfolio’s fluctuations align with the investor’s tolerance.

Historically, well-managed defensive Multi Asset Income strategies have shown around one quarter of the volatility of pure equity portfolios — a sign of their stability.

The conclusion is clear: a reliable cash flow is achievable with Income Investing, but only if the strategy is robustly designed. The combination of diversified income sources, high-quality underlying assets, and active, flexible management creates the stability that demanding investors expect — a steady income stream from their capital without compromising the substance of their portfolio.