Marc Lansonneur of Societe Generale Private Banking explains some of the products and strategies – as well as considerations – for investors to enhance yield and generate income for their portfolios.

Date: Apr 2012

Tags: Income, Yield, Bonds, Structured products, Dividends, Suitability, Liquidity, Issuer

• Given that risk aversion deters a lot of people from investing, this makes now a good time to be looking at yield-enhancing products and strategies for those investors who want to find new opportunities
• Credit-linked note structures, as an example, enable investors to replicate the bond performance but with a short tenor
• It is important to reassess investors’ risks in terms of their portfolios, in terms of liquidity and counterparty risk

When investors are looking to generate income for their portfolios, Marc Lansonneur said in an interview that apart from simple deposit products, there are several possibilities depending on risk appetite.

These range from bond products – including investment-grade and high-yield instruments – to more complex structured products or derivatives where income can be generated from volatility.

A good time for yield

According to Lansonneur, risk aversion deters a lot of people from investing, so this makes now a good time to be looking at yield-enhancing products and strategies for those investors who want to find new opportunities.

In particular for equities, he said there are some interesting opportunities – especially in Europe – in terms of valuations, yield and credit standing.

Vehicles to access income products

Lansonneur said investors can look at simple ways to access income products, for example buying a bond, or investing in a stock which pays dividends.

Investors can also opt for structured products, in particular if they want to play the credit markets but without taking exposure to the bonds until maturity.

Credit-linked note structures, for example, enable investors to replicate the bond performance but with a short tenor, he explained.

Considerations with income products

There are certain considerations for Asian investors when looking at income-enhancing products, said Lansonneur, especially in cases where they might be buying yield products, such as bonds, without being fully aware of all the risks.

For example, the European high-yield sector is considered to be risky, so while people will invest in it, they will do so only for a certain percentage of their assets. In Asia, however, Lansonneur said some investors consider some high-yield paper to be as safe as US or European government bonds.

It is therefore important to reassess investors’ risks in terms of their portfolios, in terms of liquidity and counterparty risks, he said. For equities with dividends, investors should not only look at the dividend yield, but also at the credit outlook of the company.

Index strategies

Lansonneur said investors can also find interesting index-related opportunities through structured products which are framed on maturities from a minimum term of 6 months to 1 year.

These can provide exposures to various equity indexes, with yields potentially of 12% to 15% per annum, and downside protection of 25% to 30%, he said.