4 Strong Multi-Asset Income Funds

Good allocation managers balance the goal of income with those of total return and capital preservation through disciplined risk-taking, while less appealing funds aggressively pursue yield only to get burned in corrections. The following four income-oriented strategies are Morningstar Medalists that strike a thoughtful balance between risk and yield, generating enough of the latter without too much of the former.

A standout strategy in the moderately conservative-allocation Morningstar Category is the time-tested Vanguard Wellesley Income VWIAX, which has a Morningstar Medalist Rating of Gold and aims to provide quarterly income higher than that of the broad market. The strategy successfully combines quality-focused equity and bond sleeves and reliably provides downside protection. Although the portfolio tends to underperform its median category peer in equity rallies, its downside protection in equity stress periods is consistently better than most peers. This resiliency contributes to strong long-term performance on an absolute and risk-adjusted basis. Over the trailing 10 years ended May 2023, the strategy generated a 5.2% annualized return, outperformed its Morningstar Moderately Conservative Target Risk Index benchmark by 92 basis points, and outperformed more than 95% of category peers on a risk-adjusted basis (calculated by Sharpe ratio).

Another good offering in the moderately conservative-allocation category is Bronze-rated JPMorgan Income Builder JNBAX, which has a disciplined and thoughtful approach. Seasoned portfolio managers lead this strategy while benefiting from the firm’s extensive resources. The co-leads work closely with asset-class experts across the firm to build a risk-aware portfolio. The strategy’s profile is more adventurous with high-yield bonds and emerging-market exposures than peers, which can lead to volatility in stress periods. The A shares returned 3.7% over the trailing decade ended May 2023, which lagged the category benchmark but was roughly in line with the median category peer. In 2022, the fund lost less than peers and benchmark.

Silver-rated American Funds Income Fund of America AMECX has managers who are able to balance income and capital appreciation when investing in equities. Recent improvements to resources and analytical tools for the firm’s fixed-income group instill confidence. The team provides income to its shareholders on a quarterly basis, and a stock’s yield must be at least 2.5% (3.0% historically) to be added to this portfolio. The strategy’s income mandate has resulted in a lean toward value stocks, and although they have been out of favor for most of the past decade, the strategy boasted good results compared with peers. Over the trailing 10 years ended May 2023, the portfolio generated 6.5% annualized returns that were in line with its Morningstar Moderately Aggressive Target Risk Index benchmark but landed in the best-performing quintile of the moderately aggressive-allocation category peers on a risk-adjusted basis.

American Funds Capital Income Builder CAIBX holds a Medalist Rating of Silver and offers income on a quarterly basis as well. The fixed-income allocation serves as a ballast, while the equity is meant to drive the returns. At times, this strategy’s income mandate has been a headwind. In recent years, the equity allocation’s tilt toward higher-yielding sectors such as utilities, consumer staples, and telecom hurt as these sectors underperformed the MSCI ACWI Index. Because of the mandate, the portfolio also missed out on the opportunity of owning growth giants like Amazon.com AMZN when they rallied through most of the decade prior to 2020. Despite these headwinds, the portfolio’s 5.1% annualized returns over the trailing 10 years ended May 2023 were 112 basis points more than its median global allocation category peer. The strategy landed among the best-performing 15% of the category on a risk-adjusted basis.