“Faced with unprecedented challenges; thoughtful diversification, dynamism and risk management are critical to the success of income-oriented investors,” remarks Shoqat Bungawala of Goldman Sachs Asset Managment.
Pick out sustainable income streams
In times of uncertainty, we need to prepare and respond with certainty. With the professionals in my team, we take a flexible approach to uncovering income and growth opportunities whilst maintaining robust diversification. Beyond traditional diversification across asset classes, we built our own proprietary asset allocation framework that allocates risk across sources of return in markets. We also take a deep dive into the underlying risk and behaviors within asset classes for better diversification of risks in multi-asset portfolios.
Seeking alternative sources of income helps generate income certainty. We discovered that some alternative income streams would be value-added to the portfolio. For instance, we exchange some future upside for certainty through writing covered call options. The portfolio may benefit from heightened levels of volatility and potentially less exuberant equity returns in a risk-aware manner.
Stay active and adaptive
Active management is the key to access securities with attractive total return and income characteristics whilst adapting to changing market conditions. Within Goldman Sachs Asset Management, we have a Senior Portfolio Management Working Group, connecting specialists from Multi-Asset solutions, Fixed Income and Fundamental Equity. On at least a monthly basis, we meet to share insights and discuss positioning in a timely manner. Leveraging senior oversights and expertise across teams and divisions, we endeavor to source investment ideas from extensively resourced research teams worldwide. Having a robust framework for dynamic views is critical to capture income and growth opportunities through an integrated investment approach.
Navigate uncertainty amidst the Covid-19 pandemic
With the unprecedented impacts driven by the pandemic, income uncertainty remains a top concern amongst income investors. To preserve income with more certainty, we place a strong focus on mitigating downside risks by drawing on the insights of cross-asset macro specialists and a range of proprietary macro indicators. The approach has proven particularly successful in 2020. Beyond dividend cuts of approximately 20%1 across global equities and 7%2 corporate bond defaults in the High Yield market as a result of the pandemic, some high income-producing assets have markedly underperformed broad markets. Thoughtful portfolio construction which limited typical sector, regional and credit quality biases that can occur when seeking income.
For investors seeking income and growth in 2021 and beyond, they will likely need to (i) take advantage of return dispersion potential within asset classes; (ii) position thoughtfully for the acceleration of the cyclical recovery while (iii) leveraging a broad toolkit of income producing assets to achieve their investment objectives.
About Multi-Asset Solutions in Goldman Sachs Asset Management
The Multi-Asset Solutions team, headed by Shoqat Bungawala, specialises in developing comprehensive multi-asset investment solutions. The team consists of 150-plus professionals and currently manages over US$157bn in assets3, including over US$2.8bn3 in income-oriented multi-asset strategies, for which we are humbled to be awarded the 2021 Asia Asset Management’s Best Multi-Asset House.
We look forward to hearing your thoughts. Please contact us for further discussion.
1 As of December 2020. Source: MSCI. Refers to the dividend cuts of the 1,200 largest companies by market capitalisation as tracked by MSCI.
2 As of November 2020. Source: GS Global Investment Research, Moody’s. Refers to the trailing 12-month par-weighted default rate in the US-Dollar denominated high yield market.
3 As of January 2021. Assets Under Supervision (AUS) includes assets under management and other client assets for which Goldman Sachs does not have full discretion.