Although global stock markets appear to be bouncing back from the dip earlier this year, they are still far from establishing a stable upward trend. The S&P 500 Index has gained nearly 9% over the last two weeks, but remains more than 5% off its Jan. 4 high.
Moreover, Russia’s invasion of Ukraine continues to affect global commodity prices, pushing the cost of living higher. Therefore, as uncertainty persists, investors could look for opportunities that offer decent returns at acceptable risk thresholds.
Income trust funds are mutual funds or exchange-traded funds that focus on interest or dividend-paying investments. When markets are booming, investors tend to focus on investments that offer high dividend yields or interest yields despite carrying a higher exposure to risk.
However, current circumstances seem to be more unpredictable, meaning investors may be better off balancing their risk exposure.
This is why investors could explore opportunities in diversified income funds. Generally, a diversified income fund invests in low-risk opportunities that guarantee a sustainable flow of income.
Blending quality with measured risk
However, some funds try to boost returns to investors by strategically adding quality high-yielding investments to the fund. For instance, The Henderson Diversified Income Trust (LSE:HDIV, Financial), managed by John Pattullo and Jenna Barnard, has nearly 60% invested in high-yield income assets, which might seem unconventional for a diversified income fund.
However, according to a recent publication, the two fund managers said that while targeting low-risk opportunities is vital for a diversified fund, the same goal can be achieved by building your strategy around the style and quality of investing.
Janus Henderson Group PLC’s (JHG, Financial) diversified income fund has focused on selecting quality, high-yielding bonds to beef up the returns to investors without significantly raising the level of the weighted risk exposure.
According to the portfolio managers, the Trust prefers exciting and well-structured investments like Netflix Inc. (NFLX, Financial) over investing in big oil majors that are still tied to the old economy. It has also chosen to stay away from investing in brick-and-mortar stores and physical movie theaters.
Some of their decisions would appear to have been justified when the adverse effects of the pandemic peaked, prompting oil prices to fall and the stock prices of theaters and retailers to plummet.
Conclusion
In summary, given the persistent stock market uncertainty created by Russia’s invasion of Ukraine and the ongoing Covid-19 pandemic, directing some investments toward balanced investing vehicles like a diversified income fund could be a wise decision.
However, some funds like the Henderson Diversified Income Trust Fund indicate that funds that blend quality high-yielding income assets with low-risk assets can offer decent returns without compromising on the risk exposure.
