"Lazy Asset Allocation" is in vogue. How should you buy "Fixed Income+"?

This article is republished from: Yanzhao Evening News

□ Reporter Liu Wenjing

As bank deposit interest rates continue to decline, many people have started looking for investment channels that offer relatively higher returns without requiring too much effort—“lazy-person asset allocation” has become a hot topic. On some social media platforms, “fixed-income+” products are referred to as an ideal “deposit alternative.” So what exactly is “fixed-income+”? What should you watch for when investing? We consulted professional wealth-management practitioners to explain it all in one go.

What is “fixed-income+,” exactly

As the name suggests, “fixed-income+” = fixed income + additional returns. Its core idea is: most of the funds are invested in steady fixed-income assets such as bonds to lay down a solid “core position”; a smaller portion uses a variety of strategies to pursue higher returns, serving as the “icing on the cake.”

Traditional “fixed-income+” mainly thickens returns by allocating to stocks and convertible bonds, or by participating in new stock subscriptions and private placements to boost gains. Now, the content of “fixed-income+” has expanded significantly. Some “+ stocks” select individual stocks and share in the stock market’s upside dividends; some “+ convertible bonds” make convertible bonds “able to attack when the market is up and defend when it’s down”—when the stock market rises, they convert into stocks to earn returns; when the stock market falls, they hold the bonds to get interest as a floor. Some “+ quantitative strategies,” such as dividend low-volatility and enhanced index strategies, use models to capture excess returns. And some “+ multiple asset classes” use a FOF (fund-of-funds) structure to add allocations to gold, commodities, overseas QDII products, and more to diversify risk.

For investors, “fixed-income+” is like a “nutritionally balanced” investment package: it has staple food (bonds) to provide the base, and side dishes (various kinds of “+”) to add flavor—aiming to outperform deposits and wealth-management products while controlling volatility.

Four types of investors who are suitable for “fixed-income+”

“Fixed-income+” is not for everyone. The following four types of investors may want to pay more attention.

First, people whose deposits have matured and who find the returns too low. They used to like saving in fixed deposits, but now they notice the interest is getting less and less. They want to try higher returns but are afraid of taking on too much risk.

Second, people who are averse to losses and are especially sensitive to “downturns.” When they see their account balance turning green, they feel uneasy. They hope drawdowns can be as small as possible, but they are not satisfied with the modest returns of money market funds.

Third, people who are building household asset allocation and want a stable base. They want to place most of their funds in relatively safer areas while letting their assets slowly grow.

Fourth, people who have spare cash and can’t clearly see the market direction. Stocks, bond markets, gold… upside and downside are hard to predict, and they don’t know what to buy. “Fixed-income+” is relatively more stable and less of a hassle.

Don’t let “fixed-income+” turn into “fixed-income−”

Although “fixed-income+” sounds appealing, if you choose poorly, it can still result in losses and turn into “fixed-income−.” So how should you buy it? Wealth-management professionals offer three suggestions.

1. Clearly understand the product’s positioning and match it to your risk tolerance. “Fixed-income+” is not a “no-risk, no-loss” product. Depending on the level of risk, it comes in different categories. Ultra-low risk: target maximum drawdown ≤1%, close to deposits, suitable for short-term idle money. Low risk: target maximum drawdown ≤2%, an upgraded version of wealth-management products. Medium risk: target maximum drawdown ≤3%, steady value growth. High risk: target maximum drawdown ≤5%, able to attack when the market is up and defend when it’s down. Conservative investors should not touch high-risk products; before buying, you must clearly understand the underlying assets.

2. Look at the manager’s ability to control drawdowns. Excellent “fixed-income+” products will set strict “drawdown red lines.” For example: set a maximum drawdown target in advance; dynamically adjust positions during the process—automatically reduce exposure or switch to assets that can better withstand declines when the market is unfavorable; analyze the causes afterward and continuously optimize the strategy.

3. Hold for the long term, and don’t gamble on short-term swings. The original intention behind “fixed-income+” is to help investors “stick with it.” It is recommended to hold for 1–3 years or longer. If the funds are certain to be unused for a certain period, you can choose products with a lock-in term, such as locking for 18 months, 24 months, etc., to avoid frequent short-term buying and selling.

Investing involves risk; choose with caution