Global multi-asset income strategies are becoming an increasingly compelling option for investors seeking consistent cash flow and diversification amid growing equity market concentration, according to a research note by Templeton Global Investments.

Doug Grant, the firm’s portfolio manager and deputy head of research, and Ameet Rane, portfolio manager and research analyst, argue that combining dividend-paying equities, sovereign bonds and equity-linked notes (ELNs) can provide complementary income streams while supporting long-term total returns.

The approach is particularly relevant as global equity markets become increasingly concentrated, with the 10 largest stocks now accounting for approximately a quarter of the MSCI All Country World Index.

Rather than relying primarily on capital appreciation, Templeton advocates diversifying income generation across asset classes, geographies and currencies to reduce dependence on individual markets or economic cycles.

Beyond US equities

Dividend-paying equities remain central to global income portfolios, believes Templeton, with dividends historically contributing approximately 31% of the S&P 500’s total returns between 1926 and 2025.

However, the firm is also adamant for investors to increasingly look beyond the US, where market concentration in technology and communication services limits traditional dividend opportunities.

Europe, the UK, Japan and selected emerging markets (EMs) as particularly attractive destinations for income, reflecting more favourable valuations, higher payout ratios and opportunities for sustainable dividend growth.

Dividend-focused investing also provides exposure to sectors including financials, industrials, utilities, telecommunications and healthcare – helping diversify portfolios away from mega-cap technology stocks.

Unlocking income through structured products

Templeton also highlights ELNs as an additional source of portfolio income, particularly for investors seeking exposure to growth-oriented companies that pay limited or no dividends.

By generating coupon income via returns linked to underlying equities, investors can monetise share-price volatility in exchange for capped upside participation.

This can work with some of the technology and other high-growth companies that typically reinvest earnings rather than distribute dividends.

ELN coupons can also partially offset losses when underlying share prices decline, although investors remain exposed to downside risks and the creditworthiness of issuing banks.

Sovereign bonds provide another layer

Meanwhile, government bonds offer a complementary allocation, as far as income and diversification go, with returns driven more by monetary policy, inflation and economic cycles than corporate earnings.

Templeton said it favours combining developed market sovereign debt, which has historically provided defensive characteristics during market downturns, and higher-yielding EM government bonds.

The firm argues that US dollar-denominated EM sovereign bonds offer attractive yields relative to volatility, while providing exposure to monetary policy cycles that may differ from developed markets.

However, it prefers hard-currency EM debt over local-currency equivalents because of the additional currency risks associated with the latter.

Balancing income and growth

Despite diversification benefits, Templeton acknowledges income-oriented portfolios may underperform during strong growth-led equity rallies. Dividend reductions, geopolitical developments and currency fluctuations can also undermine returns, while ELNs introduce issuer risk and limit potential capital appreciation.

Nevertheless, the firm believes combining different sources of income can help reduce reliance on any single asset class, sector or geography.