The search for income
A prolonged era of low returns could leave government facing rising demand for social services and even income support at a time when public finances are already under pressure. (McKinsey Global Institute, May 2016)
Is this trend set to continue?
1- Source: Pioneer Investments 2015 professional investors’ survey.
2- Source: United Nations, Department of Economic and Social Affairs. World Population Prospects, the 2015 Revision.
3- Source: IMF World Economic Outlook, April 2016.
4- Source: Pew Research Center analysis of the Current Population Survey, Annual Social and Economic Supplements, 1971 to 2015.
Structural challenges are changing the investment landscape and driving income demand as a main concern. To better understand these challenges, take a look at the challenges below.
The world is not only getting older but also living longer. The fertility rate is also decreasing in developed countries.
The number of pensioners is rising while the number of working people to support the pensions is decreasing.
Increasing challenges to back the public pensions and healthcare systems, and possible cuts in welfare expenditures, leading to additional income needs in retirement.
With more pensioners,
fewer workers to support them
and longer life expectancy, most
advanced economies could be exposed
to the risk of debt ratios
rising to unsustainable levels
Large public debt burdens, especially in advanced economies, as a long-lasting legacy of the financial crisis.
Many countries could be required to further reform their pension and healthcare systems, in order to reduce their financial cost. The result could be an increased need for income in retirement.
The third structural trend is the increase in regulation, which is resulting in greater responsibility at the investor level.
Low rates and prudent regulation have caused pensions to reach record low levels. Indeed, for insurers and pension funds, risk asset classes means higher capital charges, resulting in a lower risk appetite and a decline in annuity rates.
Many pensioners are already sourcing additional income through capital or work to compensate the decline in annuity rates.
The middle-class faces several challenges including inflation for some goods and services such as rent, healthcare, higher education, etc.
Facing young unemployment particulary in Europe, an increasing part of the population is set to demand higher income from capital in pre-retirement to maintain unemployed children at home and pay for their education.
Where to find income?
Years of ultra-loose monetary policy have pushed investors to search for income in higher yielding assets. To bridge the income gap, investors need to look beyond traditional portfolio allocations.
To look beyond traditional sources of income.
Despite the fact that some investors tend to neglect equity investing as a source of income, in a period of income shortage, equities can prove quite valuable.
Dividend yields can be a key income source when interest rates are low, and be combined with a profitable market participation.
Dividends can be a stabilizing factor: in the past, the dividend contribution to equity performance has been meaningful and helped mitigate losses during market downturns.
Despite higher volatility levels, equity income investing can help diversify risk. It can be a relevant way to attract income and growth out of the traditional fixed-income space, targeting high dividends.
Considering current risky conditions, some yielding opportunities still exist in the US High Yield market, such as EM Bonds and Equity markets. A multi-asset approach may allow an investor to build a target income / risk profile which aims to take advantage of the various yielding opportunities.
This kind of approach requires effective risk management, covering itself against adverse occurrences and aiming to minimize portfolio drawdowns.
A multi-asset approach can offer portfolios resilient to different market scenarios and seeking to deliver a sustainable income stream over the time.
Our investment solutions
Facing the situation, Amundi created a tailored and complete range of solutions able to answer to your needs as well as to the market challenges. So that Amundi has relied on the best income’ expertises of its teams, including the high experience of Pioneer and First Eagle ones, to offer you strong solutions.
An income solution aiming to offer the prospect of real returns through flexible and active investment
in a broad range of real economy sectors.
The fund takes full advantage of the experience of First Eagle Investment to propose a core long-term wealth solution for capital growth and regular income.
The fund targets a combination of sustainable income
and low volatility through an active multi-asset
From benchmark investing to an outcome oriented solution. A multi-asset income strategy.