Hong Kong (香港), Individual

Skip to main content

contact us

Wellington Management Hong Kong Ltd
17/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong


Chart in Focus: Income investing is not just about “chasing yield”

Multiple authors
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.

When focusing on income, and especially when seeking to generate even more of it, investors should be mindful of the implicit biases, risks and trade-offs that could arise. In this discussion, we focus on income vs capital return.

Total return is a combination of capital return (the growth of the capital invested) and income return (the interest received on that capital). Looking across asset classes, the relationship between capital return and income return generally changes as the level of income changes. In short, generating higher income in multi-asset portfolios tends to come at the expense of capital return. This does not mean that total return decreases, but rather that the mix of capital and income returns changes. We examined these dynamics for a variety of asset classes since 1995. As shown in the chart, more income doesn’t necessarily mean higher total return.

Figure 1
Yied differential

To understand why this trade-off exists, consider the example of high-yield credit. Investors can potentially increase expected income in their portfolios by adding exposure to higher-yielding bonds, but doing so will increase credit risk. This means they are more likely to experience defaults that lead to a negative capital return. High-yield bonds may also have limited capital return potential as they typically trade below or near their par value, given they typically have short maturities, and many are callable.

For investors seeking income in multi-asset portfolios, it may be prudent to strike a balance between income return and capital return, which can each be important for different reasons. Focusing too heavily on high-income-producing assets may not only limit capital appreciation potential, but may also restrict the opportunity set.

Please refer to www.wellington.com/hk/3rd-party-data for disclaimers regarding any third-party data used.


Related Fund

Read next


This material and its contents may not be reproduced or distributed, in whole or in part, without the express written consent of Wellington Management. This document is intended for information purposes only. It is not an offer or a solicitation by anyone, to subscribe for shares in Wellington Management Funds (Luxembourg) III SICAV (the Fund). Nothing in this document should be interpreted as advice, nor is it a recommendation to buy or sell shares. Investment in the Fund may not be suitable for all investors. Any views expressed are those of the author at the time of writing and are subject to change without notice. Investors should carefully read the Key Facts Statement (KFS), Prospectus, and Hong Kong Covering Document for the Fund and the sub-fund(s) for details, including risk factors, before making an investment decision. Other relevant documents are the annual report (and semi-annual report).

Issued by Wellington Management Hong Kong Limited. Investment involves risk. Past performance is not indicative of future performance. This document has not been reviewed by the Securities and Futures Commission of Hong Kong.