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It is tempting to view income investing as inextricably linked to the risk-free rate, but delving deeper into the broad asset classes of fixed income and equities reveals a varied range of yield-bearing assets. With careful management, these securities have the potential to provide a consistent, reliable stream of income across all market conditions.

US Treasuries might be the first holding that comes to mind when thinking about fixed income, but there is a whole universe of assets of different qualities and maturities within that space, each with unique characteristics that suit different market conditions. Investing sensibly across this spectrum can offer real benefits to investors who prioritize income. In fact, even the way a portfolio’s allocation to US Treasuries is structured can be important to income and capital appreciation goals, dependent on changes to the yield curve.

Broadly speaking, government bonds offer the easiest access to risk-free yield in an environ­ment of higher interest rates, but we believe understanding the way other fixed income assets behave is paramount to achieving the best risk-adjusted returns available. Initially, this would involve looking across the entire yield curve to assess the correct blend of duration for a particular fixed income portfolio. Investing solely in short-dated instruments means an inability to lock in attractive yields, creating the possibility of much lower yields as those investments mature. A shorter-duration profile also reduces the effectiveness of fixed income investments as a hedge against equity drawdowns. Secondly, incorporating other fixed income securities, such as corporate bonds, offers the prospect of more attractive yields to complement those investments carrying low or no risk. In the current environment, yields of between 5% and 6% can be generated from good quality investment-grade bonds, while yields closer to 9% are available from high-yield issues. Blending these higher-yielding assets into a portfolio can provide a significant boost to total returns at acceptable risk levels, in our view.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.

The positioning of a specific portfolio may differ from the information presented herein due to various factors, including, but not limited to, allocations from the core portfolio and specific investment objectives, guidelines, strategy and restrictions of a portfolio. There is no assurance any forecast, projection or estimate will be realized.

Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.

Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline.

Investments in equity-linked notes (ELNs) often have risks similar to their underlying securities, which could include management, market, and, as applicable, foreign securities and currency risks. In addition, ELNs are subject to certain debt securities risks, such as interest rate and credit risks, as well as counterparty and liquidity risk. Investments in equity index-linked notes (ILNs) often have risks similar to securities in the underlying index, which could include management risk, market risk and, as applicable, foreign securities and currency risks.

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This document is intended to be of general interest only. This document should not be construed as individual investment advice or offer or solicitation to buy, sell or hold any shares of fund. The information provided for any individual security mentioned is not a sufficient basis upon which to make an investment decision. Investments involves risks. Value of investments may go up as well as down and past performance is not an indicator or a guarantee of future performance. The investment returns are calculated on NAV to NAV basis, taking into account of reinvestments and capital gain or loss. The investment returns are denominated in stated currency, which may be a foreign currency other than USD and HKD (“other foreign currency”). US/HK dollar-based investors are therefore exposed to fluctuations in the US/HK dollar / other foreign currency exchange rate. Please refer to the offering documents for further details, including the risk factors.

The data, comments, opinions, estimates and other information contained herein may be subject to change without notice. There is no guarantee that an investment product will meet its objective and any forecasts expressed will be realized. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where an investment product invests in emerging markets, the risks can be greater than in developed markets. Where an investment product invests in derivative instruments, this entails specific risks that may increase the risk profile of the investment product. Where an investment product invests in a specific sector or geographical area, the returns may be more volatile than a more diversified investment product. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from use of this document or any comment, opinion or estimate herein. This document may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

Any share class with “(Hedged)” in its name will attempt to hedge the currency risk between the base currency of the Fund and the currency of the share class, although there can be no guarantee that it will be successful in doing so. In some cases, investors may be subject to additional risks.

Please contact your financial advisor if you are in doubt of any information contained herein.

For UCITS funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the UCITS Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 93a of the UCITS Directive.

For AIFMD funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the AIFMD Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 32a of the AIFMD Directive.

For the avoidance of doubt, if you make a decision to invest, you will be buying units/shares in the fund(s)/ sub-fund(s) and will not be investing directly in the underlying assets of the fund(s)/ sub-fund(s).

This document is issued by Franklin Templeton Investments (Asia) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

Unless stated otherwise, all information is as of the date stated above. Source: Franklin Templeton.

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