The multi-asset playing field presents income investors with broad opportunities across asset classes. But investors that rely only on traditional stock dividends and bond interest may be missing out on other attractive income sources.
Why Look Beyond Traditional Stocks and Bonds?
The tried-and-true multi-asset income approach of broad exposure to stocks and bonds worked for decades—and still does for some investors. But we believe expanding into a more diverse mix of high-quality income sources may create a more resilient combination of income and growth potential.
A strategy tapping income from just two assets, in our view, could be highly vulnerable if one or both struggle. This could limit the ability to capture attractive income consistently. Casting a wider net may capture more yield while reducing the chances that everything declines at once.
Embrace Multi-Sector and Alternative Income Streams
The world of income investing has expanded over the years. Corporate high‑yield bonds, for example, are no longer a US-only proposition—today, they’re only half the global supply. Investing in a global mix taps into different economic cycles; when one region is slowing, another may be growing. Investors can pivot accordingly.
Beyond corporate credit, we see benefits to accessing a broad range of building blocks dynamically as market conditions evolve:
- Emerging-market (EM) corporate bonds
- Securitized debt, such as asset-backed securities
- Property such as real estate investment trusts (REITs)
- Bank loans, including floating rate
- Variance risk premium, or option selling
- Preferred stocks and convertible bonds
Many of these investments have historically contributed higher yields than most government or corporate bonds. They also behave differently—not just from traditional assets but from each other—which may help cushion against volatility.
For example, some EM corporate debt has historically held up better than other regions in bond market downturns. Securitized debt can offer competitive yields and may often carry less credit risk than corporate bonds with comparable yields. REITs, although sensitive to interest rates, provide income tied to real estate values, which don’t always track stock or bond returns.
The Role Options Play in Income Investing
Used in moderation and with proper risk controls, option-selling strategies may also contribute meaningful and uncorrelated income from investors who pay to guard against unfavorable market or securities movements.
Some of the more effective income-producing option-selling approaches include:
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Covered calls: earning premiums from selling call options on stocks while already holding those stocks in the strategy in case the call is exercised.
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Cash‑secured puts: selling a put option while keeping enough cash to buy the stock if necessary, earning income in the meantime.
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Systematic volatility selling: collecting premiums from repeatedly selling options or volatility exposure under the assumption that volatility will stay the same or decline.
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Straddles with delta hedging: selling a call and a put at the same strike price, adjusting the stock position as its price moves to preserve equity gains while earning premiums.
These and other option-selling strategies don’t move in lockstep with stocks or bonds, making them useful income diversifiers. They’re most often effective in flat or gently rising markets, but can lose money in sell-offs. The key is managing the risk exposure through appropriately sized positions and dynamic hedging.
A Flexible and Sustainable Income Experience
As we see it, the biggest advantage of leveraging a broader income universe is the ability to source yield from more places at the most opportune times. Broader is better, since different income generators react in their own way as conditions change. No single source works in every environment, but a wider lens lets active investors balance the mix to meet the moment.
Expanding your income sources also means a strategy doesn’t rely too much on one economic factor. For example, we believe that taking advantage of today’s historically high bond yields enables multi-asset investors to rely less on equities for income and pursue select growth equities. Although high-flying stocks such as technology and communications services pay low (or no) dividends, their potential to grow dividends over time can help sustain income.
More Income Variety, Less Uncertainty
We believe focusing only on traditional stocks and bonds may overlook a wide range of income potential. The key is breadth. The more diverse the income sources, the more resilient the strategy may be—especially in uncertain markets. By selectively including global bonds, real assets, option strategies and other non-traditional instruments, multi-asset investors have the potential to increase income without adding excessive risk.
The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.
Daniel Loewy is Chief Investment Officer and Head of Multi-Asset and Hedge Fund Solutions.
Karen Watkin is a Senior Vice President and Portfolio Manager for the Multi-Asset Solutions business in EMEA.
Fahd Malik is a Senior Vice President, Co-Head of Multi-Sector Fixed Income and Multi-Asset Portfolio Manager at AB.
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