Three Reasons Why Investors Need to Source Income Efficiently

Investors naturally gravitate toward higher-income segments as a way to boost traditional core bond yields. But many US fixed-income investors have been limiting their choices to just a few aisles in the income supermarket, primarily focusing on US high-yield exposure. We think a better approach is to stock the cart with a greater variety—not all of them found in the domestic aisles.

A global multi-sector approach can deliver much more than just international diversification. If investors are willing to expand their horizons, in our view, they stand a much better chance of meeting their investment goals. Here are three compelling reasons to go global and multi-sector.

1. More Credit Segments—A Broader Net for Income Opportunities

A global multi-sector credit approach can tap a broad spectrum of segments, including international and US high-yield bonds, local-currency and dollar-denominated emerging-market (EM) debt, mortgage-backed securities, and leveraged loans. The US high-yield index is over $1.6 trillion, but it pales in comparison to a broader global multi-sector universe that’s nearly $9 trillion (Display).

That’s quite a broad net for income opportunities: bank loans, securitized debt, EM sovereign and corporate credit, and developed-market high-yield corporates. With such an extensive universe, bond managers can target areas that provide the best income and value at any given time. It also means more opportunities to be flexible in exposures, sourcing alpha opportunities even when one area might be out of favor.

2. You Never Know Which Sector Will Come Out on Top

No single fixed-income sector can dominate year after year. Ever-changing global economic and market conditions mean every category has the chance of being the best or worst performing in any given year.