“In terms of income generation, we currently like local currency emerging market debt (EMD). This offers an attractive yield of around 6 per cent which compares favourably to other areas of the market and is higher than that available on hard currency EMD.”
He notes this yield level should also provide some downside protection to the asset class if there is renewed volatility around emerging markets.
“We have also been adding opportunistically to US Treasuries when 10-year yields have been above 2.5 per cent. This helps to build our defensive exposure while valuations are still attractive,” he adds.
Infrastructure is often overlooked by income investors but the sector is poised to benefit from the shift to fiscal spending by governments in the UK and US.
Mr Hollands explains operational infrastructure projects are attractive as yields are high and because the long-term nature of the contracts means inflation-adjustments are often written in.
Mr Efstathopoulos suggests: “These assets are particularly important for protecting against rising inflation and changes in monetary policy, which have been partly responsible for driving asset class correlations higher over the past few years.
“Blending a variety of social and economic infrastructure assets can also diversify idiosyncratic risks associated with certain infrastructure vehicles like regulatory or counterparty risk.”
eleanor.duncan@ft.com
