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How to deliver a resilient and sustainable long-term income stream?

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This is a sponsored article from Baillie Gifford.

Paul Roberts
Client Service Manager
Baillie Gifford

The question we ask ourselves at Baillie Gifford when we think about providing income solutions for our clients is: how to deliver a resilient and sustainable stream of income in the long run? Our clients tell us how important it is to be able to rely on that income stream over many years. Therefore, when designing investment solutions, we prioritise long-term sustainable income over high short-term yields. We recognise how important capital preservation is in that equation – tomorrow’s capital provides tomorrow’s income. And we seek ways to protect that income stream from material declines – we focus on income resilience.

The Baillie Gifford Multi Asset Income strategy aims to provide an attractive and resilient monthly income, whilst seeking to maintain the value of that income and of capital in line with inflation over five-year periods. We believe a strategy combining active allocation across a broad range of assets with global security selection is the best way to deliver these outcomes for our clients.

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

Harnessing the power of diversity
The benefits of investing across a range of lowly-correlated assets are well-understood. The power of diversification can reduce risk and enhance returns. Our research has also shown the impact diversification can have on income. Investing across a broad range of income-producing assets can materially reduce income volatility and potential declines in income during periods of stress. A multi-asset income portfolio can provide attractive levels of income, while exhibiting characteristics more commonly associated with lower income-producing assets, such as developed market government bonds.

Active allocation – a focus on real capital preservation
We aim to provide an income stream which grows in line with inflation over time, preserving its real value. Remember, tomorrow’s capital provides tomorrow’s income, so we also need to take great care to maintain the real value of capital over time. Our research shows a multi-asset portfolio – with around a third allocated to each of equites, real assets such as infrastructure and property, and a wide range of fixed income assets – is best placed to meet our objectives over the long term. However, our experience in managing multi-asset portfolios also tells us the importance of active asset allocation over shorter time periods. We aim to provide a high level of income, but we are not afraid to make meaningful allocations towards safe-haven, lower-yielding assets to protect capital from time to time. Equally, we recognise the role that equites and real assets play in growing income and capital over time – these are crucial to keep pace with inflation. We are flexible in the short term, while cognisant of our long-term objectives.

Income resilience through security selection
We believe individual security selection is a vital ingredient when aiming to provide long-term sustainable income. Defaults or dividend cuts will dent your income stream. So, we focus our fundamental research on finding reliable sources of income. Further still, the real power of equities in a multi-asset income strategy is when you can invest in companies that provide dependable and growing dividends, while also achieving capital growth. You need to be highly selective, and Baillie Gifford has a rich heritage in doing just that – in-depth fundamental research to identify the small number of companies which will truly add value for clients over long periods of time.

An innovative approach
Our Multi Asset Income strategy has been designed from the bottom-up to focus on providing clients with a predictable and sustainable income. We’ve combined our expertise in managing multi-asset portfolios with our skills and experience in individual security selection with the aim of delivering long-term outcomes which are highly valuable to investors. The strategy delivers an attractive yield, but importantly aims to provide a growing income stream, and capital growth, to keep pace with inflation. Baillie Gifford Multi Asset Income seeks to provide long-term income, not short-term yield.

Important Information
The views expressed in this article are those of Paul Roberts, so should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions. This article contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated. Any images used in this article are for illustrative purposes only.

Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK clients. Both are authorised and regulated by the Financial Conduct Authority.

Baillie Gifford Asia (Hong Kong) Limited 百利亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 licence from the Securities and Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited
百利亞洲(香港)有限公司 can be contacted at 30/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong, Telephone +852 3756 5700.

The index data referenced herein is the property of one or more third party index provider(s) and is used under license. Such index providers accept no liability in connection with this document. For full details, see www.bailliegifford.com/legal

This is a sponsored article from Baillie Gifford.

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