Institutional investors across Europe and Asia are seeking regular investment income rather than capital appreciation, a new report by Fidelity Worldwide Investment has revealed.
With most large investors experiencing a fall in returns in recent years, more are looking to access a wider range of income-paying assets than had been the case in previous years.
"Low interest rates and bond yields are encouraging a search for yield that forces investors – institutional, wholesale and retail – to look towards assets with more attractive risk-reward characteristics," the report stated.
Fidelity added that the search for income would grow in importance over the next decade and beyond.
In particular, there has been a shift towards investment-grade credit, high-yield bonds and high-dividend, the report found.
"Together with real estate investment and infrastructure these are the asset classes considered to provide the most favourable trade-off between income and the risk to the underlying principal," the study read.
With the demand for 'safe' assets putting downward pressure on the yields of US and German bonds, the study urged investors to "differentiate between government bonds and invest in fiscally sound sovereigns, such as Canada and Australia".
Fidelity also pointed to equity income as a well-built strategy for investors who do not require cash distributions. The extra dividend returns can also provide a relative safety net against price declines if volatility continues.
Commercial real estate was also underscored by the report as an asset dominated by income, "with around two-thirds of total return from real estate attributable to income", Fidelity stated.
"What might have been seen previously as a move up the traditional risk spectrum can be characterised as a measured response to a changing risk landscape and a willingness to consider higher yielding assets that look more attractively valued," the study read.
