If you are looking for a general investment fund that meets most of your investment needs, but don’t want to be over exposed to equity, you could consider a diversified income fund.
A diversified income fund – also known as a strategic income, enhanced income or active income investment – is a multi-asset fund that aims to offer income, capital stability and moderate capital gains. Fund managers can invest in all asset classes, although with certain restrictions that are aimed at making these portfolios compatible with conservative clients and those who require a fixed income solution as part of their broader investment portfolio.
Investors wanting higher returns than a money market fund, but with less risk than they might take on if invested in the more volatile equity market, then a diversified income fund may be worth considering in consultation with an adviser.
A money market fund typically invests in money market instruments issued by the big banks, government, parastatals and corporates. It earns interest similar to or higher than prevailing official interest rates. These funds are very liquid (you can convert them to cash easily) with a low level of risk.
A cash-plus fund is one step above money market funds on the return spectrum. These portfolios tend to aim to provide a return profile that resembles that of a money market portfolio while returning about 1% extra per year. This is generally done by increasing both credit and term risk premium to the portfolio. In other words, portfolio managers include a bit more non-bank corporate debt and slightly increase the term of the average debt instrument.
What is a diversified income fund?
A diversified income fund may employ a combination of asset allocation, security selection and hedging to create an absolute return performance profile that aims to outperform money market and cash plus portfolios over time.
The fund manager does this by combining a range of diverse return steams into a portfolio that allows the portfolio to target higher returns without sacrificing liquidity.
This is possible because most of the assets in the portfolio that distinguish it from the cash plus type funds are liquid. Government bonds, property and offshore assets are all liquid, and both increase the liquidity position of the fund and enhance potential returns over time.
Investors have found the Ashburton Diversified Income Fund to be a good solution for improving their performance outlook while maintaining a conservative investment approach. The fund has done well since inception in March 2018, having returned an annualised 9.28% per annum.
A strong credit component is part of the fund’s DNA, allowing for a solid base from which to build the fund. This is then overlaid with the house view macro framework and good skills in structuring and hedging to provide a truly best investment view in the fixed income investment space.
The Ashburton Diversified Income Fund is ideal for the investor looking for a long-term conservative investment, or an allocation to fixed income assets within a broader investment portfolio.
The diversified income type portfolio is the only fund in the income segment of the market that can truly be seen as a potential long-term solution – even if it is only for conservative clients.