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June 26, 2015 at 10:12 AM
“It’s no surprise people are looking for income,” said Morningstar fund-of-funds analyst Jeff Holt, as he kicked off a final session at the 2015 Morningstar Investment Conference in Chicago on Friday. “And look at the [resulting] growth of these multi-asset income funds.”
Addressing a panel of three portfolio managers and an audience of several hundred advisors and other professionals, Holt pointed to a slide of the top 10 such funds with $10 billion and up in assets.
The Franklin Income Fund (FKINX), for instance, has about $93 billion, while the JP Morgan Income Fund (JNBAX) has nearly $13 billion and the BlackRock Multi-Asset Income Investor Fund (BAICX) about $12 billion.
“The typical investor … is very risk aware and sensitive to the loss of capital,” said Michael Fredericks, head of U.S. retail asset allocation at BlackRock and portfolio manager of BAICX, which has a trailing-12-month yield of 4.74% according to Morningstar.
“We want to be risk adverse when it comes to income … and not overstretch for yield, and we especially want to do well in down market,” Fredericks said.
Looking ahead, the investment expert says the firm’s strategy of the past few years is not likely “to work so well going forward, so we look to be flexible as we navigate a rising rate environment.”
In addition, the fund manager says his team is “willing to sacrifice income if valuations don’t look very attractive, last summer’s bond prices, when there’s not much upside left.” Over all, the BlackRock manager says, the fund “advertises a 4% to 6% yield, which is very sustainable,” according to Fredericks.
Managers of JP Morgan’s income fund believe investors “have to spend risk to get return and to get income,” said portfolio manager Anne Lester, “and we help them do that as efficiently as possible when it comes to the tradeoff.” As for where the fund makes its bets on risk, “We put money into equities and preferred [stocks] with similar yields and potential for upside. That’s a pro-risk view of the portfolio, which we aren’t expected to have forever.” (The JP Morgan Income Builder has a trailing-12-month yield of 4.22%.)
“We ask what kind of risk do I want to expose the investors to?” explained Ed Perks, chief investment officer of the Franklin Equity Group. “That drives our positions in the portfolio …, and the asset mix has switched [around] a lot in the past decade, as credit spreads have declined.” (The Franklin Income Fund has a trailing-12-month yield of 4.98%.)
