Growth, income and simplicity: A different take on multi-asset investing

Equities are widely held to be the best way to grow long-term wealth but after a long bull market, cracks might be appearing in the paintwork. Speculation about whether US mega-cap technology companies are in bubble territory is mounting, at a time when global and US indices are increasingly concentrated. 

Introducing bonds into the mix is a good first step to dampen down the volatility of portfolios that are heavily exposed to equities – but there are many additional ways to enhance both the return potential and resilience of portfolios, without deviating from a simple and transparent combination of stocks and bonds.  

Income-generating assets offer protection in down markets 

Tilting both the equity and bond allocations towards income-generating assets can help protect investors’ wealth during stock market downturns. 

Consider a portfolio whose assets are evenly split between investment-grade bonds (ICE BofA Global Broad Market index) and dividend-paying equities (MSCI World High Dividend Yield index). Such a portfolio would have imposed far smaller losses on investors during major market corrections than a 100% allocation to equities (MSCI World). 

By way of example: during the bursting of the dotcom bubble from 2000 to 2003, the maximum drawdown suffered by investors in the income-focused portfolio described above would have been 12%. But by March 2003, investors with a 100% allocation to global equities would have endured a loss of 49%¹. 

More recently, in the short Covid-inspired sell-off in March 2020, investors in the simple income-based portfolio would have seen an 8% fall in the value of their investments. Losses incurred by the equity-only portfolio were, at 15%, almost twice as large¹. 

Income assets provide insulation in weak equity markets 

Source: Bloomberg, Artemis as at 30 June 2023. Index data in GBP, showing peak to trough MSCI World price change and the price change in a 50% MSCI World High Dividend Yield and 50% ICE BofA Global Broad Market Index portfolio, rebalanced monthly 

Dividends can make a meaningful difference to long-term returns 

Share price growth garners so much attention that it can be easy to overlook the significance of dividends in generating returns. Yet in the US, 55% of the cumulative total returns from the S&P 500 from 1988 to 2024 can be attributed to reinvested dividends². 

Growth of £10,000 invested from 1988-2025

Source: Lipper to 30 November 2025 

Diversify the equity portfolio away from the ‘usual suspects’ 

There is no denying that the world’s largest technology companies, such as Amazon and Microsoft, have been tremendously successful, but they are not the only game in town. There are plenty of other things happening in the world, away from tech and AI. It is perfectly possible to harvest attractive returns from global equities without placing an outsized wager on US mega-cap growth stocks. 

Defence, banks, gold miners and Korean companies have all performed well this year. Kinross Gold has doubled and almost doubled again, up 197% year-to-date in local currency terms. Rheinmetall is up 151% even after an autumn sell-off, Siemens Energy has risen 128%, Heidelberg Materials has returned 82% and Standard Chartered is up 71%³. 

They have all beaten Alphabet (66%), Nvidia (up 35% this year after a sell-off in November and December), Microsoft (16%), Apple (14%), Meta Platforms (11%), Amazon (7%) and Tesla (6%)³. 

In the Artemis Monthly Distribution Fund, we have been taking profits from some stocks that have run up a long way and recycling capital into areas that offer better value, such as emerging market consumer stocks, healthcare names that look extremely cheap, and companies in Japan and Korea that continue to benefit from corporate governance reform. Standard Chartered is one of our largest equity holdings because we’re getting UK corporate governance standards plus emerging market growth for a UK multiple. 

High-yield bonds can juice up returns 

Within the fund’s fixed income allocation, we have significant exposure to high-yield bonds, which offer superior returns compared to investment-grade credit and exhibit lower volatility than equities. 

There has never been a better time to invest in high yield, in our view. The asset class has undergone a transformation over the past decade, becoming much less risky. BBs (the highest-quality part of the market) have gone from 40% of the market 15 years ago to 60% today, whereas CCCs have fallen from 20% to 9%⁴. This suggests the default rate from here is likely to be half that of its historical level. 

Increasing quality reduces the chance of a large default cycle in high yield

Source: ICE BofA Merrill Lynch Global High Yield Constrained Index as at 31 December 2024. Implied market 1yr default rate is based on S&P median default rates 1981-2021. 

Within high yield, we aim to reduce risk further by focusing on short-dated credit from higher-quality issuers that are not heavily indebted. 

Coordinating the equity and bond pieces enables us to reduce risk and amplify returns 

The Artemis Monthly Distribution Fund is run by a team of four – two equity manages, two fixed income managers – who talk every day. A key advantage of this set-up is that we look throughout the entire capital structure to see what offers the most attractive combination of good value and good income, whilst also making sure we don’t inadvertently double down on risks. We discuss what the optimal trades should be from the entire fund’s perspective, not just for our individual slices. 

Growth, income and simplicity 

The future is uncertain. Given that, there may be something to be said for steadily gathering and reinvesting dividends from equities and coupon payments from bonds and then letting compounding slowly work its magic. 

James Davidson is a fund manager in Artemis' Global Income team and he co-manages the equities element in Artemis' Monthly Distribution strategy.