Diversifying your sources of return is an effective way of reducing volatility and smoothing the returns profile of a portfolio. The benefit of allocating between various asset classes is that they tend to perform differently across different parts of the business cycle. This is a generalisation though as within each of the major asset classes are sub-strategies or sub-sectors that perform differently during different parts of the business cycle. Within equities, for example, there are different sectors that will perform depending upon the stage of the business cycle we are in.
Income producing strategies can also behave very differently depending upon the stage of the business cycle. During a contraction, which typically results in lowering of official interest rates, fixed income securities will tend to perform better than cash or floating rate securities. This raises the question, should you diversify your income sources?
Approaching portfolio construction for income needs from a holistic perspective is important as it provides exposure to the return generation across the business cycle.
Having exposure to a range of income return sources can reduce this risk and should result in smoothing of returns across the business cycle. An exposure to cash, fixed income, credit, hybrids, and income-producing equities such as AREITs and infrastructure provides significant diversification benefits to an income portfolio, which is particularly important for those investors relying on their investment for their income needs.
Source: Goldman Sachs Asset Management, Bloomberg. This information discusses general market activity, industry or sector trends, or other broad based economic, market or political conditions should not be construed as research or investment advice.
Past performance is not a reliable indicator of future performance.
Income producing strategies can also behave very differently depending upon the stage of the business cycle. During a contraction, which typically results in lowering of official interest rates, fixed income securities will tend to perform better than cash or floating rate securities. This raises the question, should you diversify your income sources?
Approaching portfolio construction for income needs from a holistic perspective is important as it provides exposure to the return generation across the business cycle.
Having exposure to a range of income return sources can reduce this risk and should result in smoothing of returns across the business cycle. An exposure to cash, fixed income, credit, hybrids, and income-producing equities such as AREITs and infrastructure provides significant diversification benefits to an income portfolio, which is particularly important for those investors relying on their investment for their income needs.
Source: Goldman Sachs Asset Management, Bloomberg. This information discusses general market activity, industry or sector trends, or other broad based economic, market or political conditions should not be construed as research or investment advice.
Past performance is not a reliable indicator of future performance.
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