Income Investors: Don’t Stretch for Equity Yield

For investors looking for income through a multi-asset class approach, it might seem sensible to max out the dividend yield within the equity allocation. After all, income is income—no matter where it comes from. But reaching for yield alone may also mean missing out on strong return potential from other equity sectors—and bring unintended biases.

That’s why we don’t think dividend payers should be the exclusive members of your equity holdings (Display). Yield-focused equity strategies may introduce regional and sector concentrations that can influence returns. The holdings of the MSCI World High Dividend Yield Index, for instance, typically tilt toward Europe and sectors like consumer staples and energy. The index also underweights the US and technology—home to many of the world’s most profitable, fastest-growing firms that reinvest their earnings instead of distributing them. Most Mag Seven members would miss the cut.

Given the relatively attractive yields available in other asset classes—notably bonds—we think it makes more sense to design “core-like” equity exposure within multi-asset income solutions. By blending styles and factors and designing a balanced allocation, we believe it’s possible to capture high-growth, high-earnings companies while keeping yields competitive with dividend-only strategies.

Of course, markets are dynamic—the income landscape continues to evolve. And not every company will be able to deliver on its potential. Designing an income strategy requires a company-by-company assessment and the ability to adapt that design as the map of income opportunities changes shape.