Three Income Themes for Multi-Asset Investors in 2023

n one of the most challenging years for markets, 2022 brought persistently high inflation, aggressive central bank tightening and heightened geopolitical risks, leaving investors with few places to hide. With major sell-offs and dislocations in practically every corner of the market, traditional stock-bond mixes like the 60/40 have struggled. As a result, many income investors are uneasy about what to expect in 2023.

Income Options Are Broader than Many Investors Think

The landscape for multi-asset investors, particularly those on an income path, has shifted dramatically. Yields began the year at the bottom of their 10-year ranges but will likely finish near decade highs (Display). High-yield credit, for example, offered a yield to worst of 4.2% in late December 2021, not much more than high-dividend equities. Now, it’s more than doubled that level.

This scenario played out across income-generating investments, including investment-grade bonds, hurting near-term returns for income seekers. But it also leaves investors with a wide range of opportunities, provided they have the flexibility to consider a broad spectrum of asset classes.

Looking to 2023, we think income-oriented multi-asset investors should consider three key themes:

1. Seek Diversified Sources of Equity Return

Income investors naturally favor the reliability of high-dividend stocks, especially lately. With their defensive characteristics (stable income streams and more mature business models), dividend-payers proved steadier as markets grew choppy during the year—in fact, the sell-off for high-dividend stocks was half that of cap-weighted equities in 2022.