With rates so low, however, investors must look beyond a fixed income-only solution. Even at the index level, global stocks provide a dividend yield to rival, if not exceed, high-quality bonds. We favor a more targeted approach to a dedicated equity income strategy, including dividend growers and publicly traded real assets like REITs and infrastructure. These dividend payers are also less correlated than the bond market to day-to-day moves in interest rates.
Perhaps the most fertile ground for income-seeking investors is in alternative asset classes. Direct ownership of real assets—real estate, farmland, timber—provides income diversification not only by source, but also by time horizon. These assets are often backed by long-term leases to tenants, making their income streams less volatile and the overall investment experience smoother.
Private credit has many properties in common with high yield corporate bonds and leveraged loans, but is typically only available through less liquid limited partnership investments. Backed by skilled management and investment selection, it’s another source of income that can perform in an economic recovery.
Looking Ahead
Bill Martin is CIO of Global Fixed Income at Nuveen. Saira Malik is CIO of Global Equities at Nuveen.
In sum, growth is improving, but the investment horizon remains cloudy. The coronavirus and ensuing economic and market upheaval have rattled investors, challenged income generation and called into question the long-term health of key global sectors and industries. Navigating markets from here looks to be extra tricky. In the coming sections, we’ll share some of our best investment ideas from individual GIC members. We’ll wrap up with selective ideas for portfolio construction for the second half of the year.