Years of historically low interest rates have left investors starved for income, and feeling compelled to make a difficult choice in their ever-expanding search for growth.
Either invest in ultra-safe bonds and get their paltry payouts, or opt for high yielding investments that carry considerably more risk and volatility. Many investors remain overweight cash, hoping to lock in higher rates when yields finally climb. But with interest rates likely to remain low for the foreseeable future, the odds don’t favor this approach.
We’ve found that a diversified approach to income investing can help savers combat the low interest rate environment. In our view, choosing a broader set of income-producing assets may help improve a portfolio’s risk/return profile.
A truly well-diversified portfolio draws from a variety of income-producing asset classes, including stocks, bonds, real assets and alternatives, an approach that may allow investors to earn competitive yields without taking on excessive risks.
Read our full perspective on finding income in a low rate world.
Investments in securities of growth companies may be especially volatile. There is no guarantee that the issuers of stocks held by mutual funds will declare dividends in the future, or that if dividends are declared, they will remain at their current levels or increase over time. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Emerging and developing markets may be especially volatile. Due to the recent global economic crisis that caused financial difficulties for many European Union countries, Eurozone investments may be subject to volatility and liquidity issues. Preferred shares are subject to interest rate risk; when interest rates rise, the value of the preferred stock having a fixed dividend rate tends to fall. Preferred shares do not represent a liability of the issuer and, although generally ranking ahead of common stock in a bankruptcy or insolvency, would generally rank behind liabilities of the issuer. Fixed income investing entails credit risks and interest rate risks. When interest rates rise, bond prices generally fall, and a Fund’s share prices can fall. Below-investment-grade (“high yield” or “junk”) bonds are more at risk of default and are subject to liquidity risk. Event-linked securities are fixed income securities for which the return of principal and interest payment is contingent on the non-occurrence of a trigger event that leads to physical or economic loss. If the trigger event occurs prior to maturity, the Fund may lose all or a portion of its principal and additional interest. Senior loans are typically lower rated (more at risk of default) and may be illiquid investments (which may not have a ready market). Investments in real estate companies, including REITs or similar structures, are subject to volatility and risk. Smaller real estate companies may also be subject to liquidity risk. Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each Fund’s investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations which may result in erratic price movement or difficulty in buying or selling. Additional management fees and other expenses are associated with investing in MLP funds. Diversification does not guarantee profit or protect against loss.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict performance of any investment. These views are subject to change based on subsequent developments.