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Balanced Income Portfolio - Back to the future?

TMC | Car

As inflation trends towards 10%, stagflation is in play and worries of recession are making headlines, thoughts and reflections of the past begin to resurface. Some things were undeniably better in the 1970s and 80s – the music for a start! Other features of this era are certainly more debatable; the flares, the shoulder pads, the even bigger hair, and few people will care to recall the 17% UK interest rate of 1979. Stock markets laboured under the pressure of it all, but to us one investment strategy shone through the gloom and provided retail investors with decent returns and a realistic income to boot. The investment strategy in question proved resilient in the face of difficult stock markets too.

The concept of a multi asset portfolio delivering an attractive stable income which can be reinvested as “growth” or withdrawn as income has an appeal broader than the retirement market from whence it came. This coupled with a mixed asset composition albeit comprising a diversified equity allocation will allow for longer run growth. Sure, the equity component will ebb and flow with markets, but this will be compensated for by the security of a stable income which, thanks to dividends, can also grow over time.

Companies with strong free cashflow and a clear dividend policy are beacons of light in the darkness during periods when many other firms are not able to deliver ongoing share price growth. Finding these companies to begin with and then researching and selecting and monitoring them is a skilled job. In the 21st century the universe of qualifying names is bigger and more international than has been the case hitherto. Then creating a mixed asset portfolio to diversify risk to an acceptable level and to provide an underpin to a relevant and attractive starting income is vital. A scientific methodology to appraise genuine income sustainability is a real innovation brought to bear by modern systems and smart applications within Alpha Beta Partners.

We have created a medium risk multi asset portfolio which delivers a starting income of 3.5% to 4% per annum along with real prospects for medium to long term capital growth – Balanced Income Portfolio was launched on 1st January 2018 with the intent of creating a portfolio such as the one described above. We blend active and passive managers together to comprise the right mix to deliver the objective at a sensible all-in total cost for investors.

The chart below shows the robustness of the income yield over time – making a real contribution to total return or providing an attractive withdrawal income, around which investors can plan.

Morningstar 1 Year Rolling performance Breakdown with Income & Capital Return

Source: Morningstar Data as at 30 April 2022

Diversification – The manager maintains the portfolio risk profile by diversifying across different asset classes and geographies in proportion to the nature of the risk and return objective. A global approach is adopted to ensure the best stocks are selected and a more diversified source of yield is provided as shown below.


Source: Morningstar Data as at 30 April 2022

Fixed income is well managed with the overwhelming majority of stock held at investment grade but is blended to deliver the optimal balance of risk and reward as shown below. Likewise full liquidity is maintained to provide investors with the ability to sell their holdings for cash at any time. We purposefully avoid derivatives and complex financial instruments.


Source: Morningstar Data as at 30 April 2022

Despite the passage of time and associated fashions, some things rarely change. Investors, whether at retirement or earlier in life are keen to preserve the real value of capital and invest for the long run in a strategy which is tried and tested – one that delivers a balanced portfolio with a robust yet genuinely sustainable yield, which can be commuted as income or rolled-up as a strong contributor to total return. Additionally, the potential to grow capital over time within a risk controlled well diversified multi asset portfolio is attractive. In our opinion the Balanced Income Portfolio may offer a series of attractive attributes for modern investors and potentially answers several needs and requirements. The current economic backdrop makes this investment strategy perhaps even more appealing.


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Important Information

This material is directed only at persons in the UK and is not an offer or invitation to buy or sell securities.

Opinions expressed, whether in general, on the performance of individual securities or in a wider context, represent the views of Alpha Beta Partners at the time of preparation. They are subject to change and should not be interpreted as investment advice.

You should remember that the value of investments and the income derived therefrom may fall as well as rise and you may not get back your original investment. Past performance is not a guide to future returns.

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