We do not make forecasts for the year ahead. We do think through what could happen, and make sure the portfolio can live with each outcome. This note sets out where the Global Multi-Asset Income Strategy stands and how we have thought about the next 12 months.
At the end of July the portfolio held 46% in equities, 38% in bonds, 11% in listed infrastructure and property, and 5% in cash. Its yield was around 4.6%.
The biggest change over the past year has been in bonds. For most of the strategy’s early life, bonds paid so little that we held them mainly as protection. Now they contribute almost half of the portfolio’s income. We have added four percentage points to gilts maturing in five to 10 years, which yield more than 4% and would rise in value if the economy weakened and rates were cut.
In equities we hold global dividend payers, with more in Europe, the UK and Japan than a global index would. Large American companies dominate world indices but pay relatively low dividends. We own some, chosen for the cash they return, but we do not try to match the index.
Listed infrastructure and property trade at discounts to the value of their assets that we think are too wide. Higher rates explain some of that. They do not explain why a portfolio of regulated electricity networks, with income linked to inflation, should trade 20% below what its assets would fetch in a private sale. We have added gradually and will continue to do so.
We have thought through three broad outcomes. If inflation falls and rates are cut, our bonds and infrastructure should do well, and the income on new bonds will drift lower. If inflation stays sticky and rates stay where they are, the portfolio’s income holds up and equities matter most. The harder case is a return of rising inflation, when shares and bonds can fall together as they did in 2022. Our cash, our short-dated bonds and our inflation-linked infrastructure income are there for that outcome. They would soften a fall, not prevent one.
The aim, as always, is an income that holds up across the range, not a portfolio that is right about one outcome and badly wrong about the others.
This article reflects the author’s views on the date of publication. It is not investment advice or a recommendation to buy or sell any security. Capital is at risk and past performance is not a guide to future returns.