JPMorgan on how to construct a "non-traditional" investment approach

Olivia Mayell, managing director and head of the client portfolio management team within JPMorgan's global multi-asset group, discusses "non-traditional areas" of her investment strategy that are generating strong income and returns.

Mayell oversees the £234 million JPM Multi-Asset Income fund and other multi-asset portfolios at JPMorgan. She believes investors increasingly need safe havens for generating income as interest rates climb.

"Having too much in fixed income is clearly dangerous, but leaving your cash in savings means you lose out to inflation. Multi-asset income funds that generate yield across a diversity of asset classes can offer a broader opportunity set."

She highlights the importance of having a skilled manager to balance risk and return and believes there are many income opportunities outside traditional stocks and bonds.

Mayell says high-yield bonds, emerging markets debt and equities, real estate investment trusts (REITs), preferred shares, convertibles and non-agency mortgages all have a part to play in generating steady income. She stresses the importance of convertibles - bonds that can be converted into company equity at certain times - explaining: "They [convertibles] are defensive because they access the upside potential of equities, but with a lower volatility level. A manager with convertible expertise can reap the high yields."

JPM Multi-Asset Income currently holds 4% in convertible bonds; JPMorgan also launched a convertible investment trust in June of this year.

Mayell believes preferred equities offer higher yield than any other type of equity, often as much or more than high-yield debt, but not many investors are familiar with the asset class. "A specialist manager can pick among the best preferred equities to create attractive yield. The JPM Multi-Asset Income fund holds 6% in this sector."

The manager also picks out US residential mortgages, which represent an $11.2 trillion (£7.1 trillion) income opportunity, but says most investors don't have the time or expertise to pick out individual securities.

She adds: "Getting exposure to the yield of non-agency mortgages through a diversified multi-asset income fund can offer attractive return. JPM Multi-Asset Income fund holds 10% in this sector."

Mayell also warns against becoming overly reliant on UK sources of income. She explains: "For example, high profile multi-manager income funds have high fees and hold UK equity income funds, which themselves hold many of the same shares. FTSE 100 (UKX) dividends are very concentrated - [the] top five payers accounted for 35% of all distributions last year.

"Instead, find a multi-asset fund with broad exposure to global dividend equities."

Over one year, the JPM Multi-Asset Income fund has returned 7.8% compared with 8.6% in the UT Mixed Investment 20%-60% Shares sector as at 9 September.

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