Kate
Lin:
Welcome
to
Morningstar.
Globally,
with
fixed-income
yields
looking
more
promising,
the
income
outlook
for
global
multi-asset
funds
is
on
the
upswing.
Interest
rate
hikes
are
the
main
cause,
but
what
else
are
fund
managers
investing
in
Asian
assets
thinking
about
to
try
to
meet
the
rising
expectations
for
income
from
investors?
Sam
Hui,
our
Manager
Research
Analyst,
is
with
us
today
to
discuss
some
strategies
these
fund
managers
are
using
to
stay
ahead.
Hi,
Sam.
What
are
the
net
impacts
of
interest
rate
changes
and
stock
and
bond
corrections
from
last
year,
especially
in
China,
on
Asian
multi-asset
income
funds?
Sam
Hui:
Hi,
Kate.
Thanks
for
the
question.
We
have
observed
aggressive
rate
hikes
triggering
asset
prices
to
fall
across
bonds
and
stocks
globally.
Asia
was
not
immune
from
that,
and
the
downfall
of
China’s
property
sector,
as
well
as
the
COVID
lockdown
and
geopolitical
tension
also
posed
challenges.
Against
this
backdrop,
Asian
multi-asset
funds
posted
one
of
their
worst
years
in
2022,
recording
double-digit
losses.
The
picture
for
China
multi-asset
funds
was
slightly
worse,
given
their
constraint
in
geographic
positioning,
and
they
have
to
allocate
the
bulk
of
their
assets
in
China,
despite
the
challenges
facing
the
country.
That
said,
the
investment
prospect
of
Asia
and
China
multi-asset
income
fund
has
turned
brighter,
as
they
now
enjoy
a
more
attractive
opportunity
set,
given
improved
yields.
Lin:
Can
you
tell
us
how
they
have
coped
with
the
new
environment,
and
what
are
some
changes
to
their
portfolios?
Hui:
In
our
paper,
we
have
looked
at
Asian
and
China
multi-asset
income
funds
offered
by
Schroders
and
JP
Morgan,
which
are
some
of
the
largest
funds
in
the
Asian
market.
They
have
all
increased
allocations
to
bonds
versus
stocks,
as
the
teams
believe
bonds
are
increasingly
attractive
in
terms
of
risk-reward
following
the
interest
rate
reset.
This
has
resulted
in
more
balanced
stock-bond
splits
for
portfolios.
Within
bonds,
the
managers
have
trimmed
exposure
to
China
property
and
explored
opportunities
in
other
sectors
and
outside
China.
They
prefer
higher-quality
issuers
given
the
gloomy
macro
backdrop.
Specifically,
for
the
Asia
portfolio,
we
have
seen
some
structural
refinements
to
them.
Following
the
significant
underperformance
of
value
stock
against
growth
stock
in
2020,
both
Asia
funds
from
Schroders
and
JP
Morgan
introduced
a
quality
growth-tilted
equity
sub-sleeve
to
complement
the
existing
dividend-tilted
and
value-focused
equity-sleeve.
This
should
help
mitigate
future
stylistic
headwinds
and
strike
a
better
balance
between
income
and
total
return.
To
sum
up,
the
Asia
and
China
multi-asset
income
fund
portfolios
we
see
today
are
more
balanced
and
diversified
than
a
few
years
ago.
Lin:
Some
global
strategies
are
giving
out
yields
as
high
as
9%,
which
is
quite
impressive.
What
about
Asian
allocation
funds?
Are
they
offering
similarly
appealing
yields?
And
more
importantly,
are
they
sustainable?
Hui:
There
are
a
couple
of
Asian
multi-asset
income
funds
offering
8%
to
9%,
but
we
emphasize
that
such
level
is
extreme
for
both
global
and
Asia.
Investors
should
be
mindful
that
there
is
no
free
lunch
for
yield.
Higher
yield
tends
to
come
with
greater
risk,
and
if
that
is
not
sufficiently
backed
by
income
generated
from
underlying
assets,
the
distribution
may
not
be
durable.
It
is
important,
therefore,
to
assess
the
level
of
payout
together
with
the
level
of
income
and
source
of
income.
For
example,
Schroder
China
Asset
Income
invests
its
equity
sleeve
into
quality
growth
companies
which
tend
to
have
a
lower
dividend
yield,
and
it
is
reasonable
for
them
to
have
a
lower
payout
of
around
3%
while
having
some
capital
appreciation
potential.
On
the
other
hand,
JPMorgan
China
Income
invests
its
equities
sleeve
live
into
dividend
and
value-focused
stocks.
Therefore,
they
are
able
to
support
a
higher
payout
yield
of
roughly
4.5%.
Turning
to
Asia,
Schroder
Asian
Asset
Income
yields
around
6%,
whilst
JPM
Asia
Pacific
Income
yields
around
4.5%.
While
both
funds
have
their
equities
sleeves
focused
on
dividend
stocks,
they
favor
different
sectors.
You
can
learn
more
in
our
recently
published
paper.
Overall,
investors
should
look
through
the
payout
amount
and
also
consider
the
level
of
risk
and
total
return
when
they
select
funds
for
their
investment
objectives.
Lin:
Thank
you
so
much
for
your
time,
Sam.
As
Sam
mentioned,
for
detailed
findings,
check
out
our
latest
research
report.
For
Morningstar,
I’m
Kate
Lin.
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