Target Earnings Investing
A multi-strategy approach allows a fund to be more flexible and achieve its income objectives.
Often described as “unconstrained by benchmarks” or “geographic” parameters, such an approach would aim for example to earn a cash rate plus X%.
Such an “absolute return investment strategy” with an income focus can set a fund apart from its peers.
Diversifying risk by investing across a wide range of income sources is often a successful formula across volatile market conditions.
An example objective could be “the fund is targeting to achieve less than half the volatility of an equivalent investment in global equities over any three-year period”. The fund could even be built around an investment time-frame of more than five years.
A fund such as this could aim to help investors diversify portfolios with an approach that targets specific levels of income with lower correlation to equities, bonds and other traditional asset classes.
To generate income the fund could, for example, invest in equities and REITs for dividend income or higher-yielding bonds for coupon payments.
It might use opportunistic strategies identifying events created by the actions of other market participants, such as over reaction to short-term events.
Or adopt risk-reducing strategies seeking to generate income by taking a geographic spread of fixed income investments outside of main markets of the US and Europe.
The risks of an allocation to credit or to fixed income, in general, will come from increased interest rate risk or duration risk.