3 ways to earn income in a complex market

In today’s market, income investing is no longer just about dividends and deposits. With inflation, interest rate shifts, and political uncertainty all in play, investors need to be nimble and selective in how they generate reliable income.

In this special panel session for Livewire Markets’ 2025 Income Series, three seasoned portfolio managers share their sharply contrasting strategies and what they believe are the biggest risks and opportunities on the horizon.

For equities, Dr Don Hamson of Plato Investment Management is steering through shrinking dividend yields and the return of market volatility. His team runs a high-turnover portfolio to stay ahead of dividend traps. He warns that equity investors can’t afford to be passive.

“You can no longer take a set-and-forget approach to your portfolio… about 20% of stocks cut their dividends each year.”

In the bond market, Dylan Bourke of Kapstream Capital sees value in active duration management and global diversification, especially with yields now firmly above zero.

“In 2022, when rates rose sharply, we reduced our exposure to interest rate risk. But now we’re adding it back in.”

Meanwhile, Craig Schloeffel from HMC Private Credit offers a very different perspective, grounded in physical assets and floating-rate loans backed by residential real estate.

“Private credit gives you transparency – you can literally see what’s happening at the property.”

While each manager works in a different part of the income spectrum, one theme unites them: opportunity still exists, but it comes with new kinds of risk. Political volatility, market fragility, and supply chain disruptions all loom large in their thinking. So does the importance of being dynamic and disciplined in today’s environment.

Watch the video below for the full discussion, including what each manager would do with a hypothetical $100,000 inheritance. Alternatively, scroll down for a full transcript.

Edited transcript

Chris Conway: Welcome to the Livewire Income Series for 2025. My name is Chris Conway.

Several years ago, income investing was quite simple – buy some dividend-paying blue chips and government bonds or term deposits, then you were all set. But now, investing has become complicated due to the numerous options available throughout the risk-return spectrum. So how should you adapt your investment preferences for income today? To address this question, we have gathered a panel of experts: Dr Don Hamson from Plato, Dylan Bourke from Kapstream, and Craig Schloeffel from HMC Private Credit. Gentlemen, thank you for joining us.

Let’s start with the broader perspective. Don, what are the primary factors affecting your ability to generate income, and how have they changed over the last 12 months?

Generating income in the current environment

Dr Don Hamson: Well, it's become challenging to generate income from equity because equity markets are currently at an all-time high. Also, Australian dividends have been continually decreasing, meaning yields are at an all-time low. The Australian market's yield is about 1% lower compared to 12 months ago. Therefore, the challenge lies in dealing with low yields amidst rising equity markets and decreasing interest rates.

Chris Conway: What about you, Dylan, regarding the bond space?

Dylan Bourke: We're fortunate in the bond space because our yields are quite high. For instance in investment-grade bonds, you can still garner a 5.4% yield to maturity. Even though it has decreased over the past year, we can conclude that the yield looks good compared to living in a zero-yield world.

Chris Conway: And Craig, how about from the perspective of private credit?

Craig Schloeffel: The private credit market is slightly different as we are not correlated with many markets. We've noticed that changes in interest rates do not dramatically affect our market. However, due to the inflow of capital into private credit, we have observed some constraint on spreads.

Different income strategies

Chris Conway: Now let’s shift gears and discuss how you each operate along different parts of the income spectrum and take a closer look at your distinct strategies.

Don, Plato aims to offer a consistent yield in a world where dividends can be cut, franking credits fluctuate, and equity markets are unpredictable. How do you achieve this?

Dr Don Hamson: The key is being proactive. You can no longer take a set-and-forget approach to your portfolio. The Australian market is quite cyclical, with about 20% of stocks cutting their dividends each year. This figure is higher presently due to decreasing interest rates and commodity prices. Therefore, it's crucial to be active to avoid stocks that are reducing dividends.

Chris Conway: Dylan, Kapstream mainly focuses on high-grade credit and proactive bond portfolio management. How have you adapted to the new or changing rate regime, and what is your greatest challenge right now?

Dylan Bourke: Being proactive, like Don mentioned, is vital in this time. In 2022, when interest rates increased significantly, this led to capital losses in fixed income. As a response, we cut our exposure to interest rates down to almost zero. As rates have started lowering, and fixed income is looking good again, we've increased our sensitivity to interest rates. You also need to be dynamic globally. You need to find the most lucrative markets and get the best relative value possible.

Chris Conway: Craig, there is a fair bit of scepticism about private credit. How do you handle this while delivering attractive returns?

Craig Schloeffel: Private credit is a vast asset class. It varies from real estate back to corporate asset finance and structured credit. However, we focus mainly on commercial real estate-backed credit. It provides high transparency as one can literally see what is happening at the property. Additionally, we welcome some form of regulation in our space to elevate transparency levels across the private credit market.

What about the risks?

Chris Conway: Gentlemen, let's shift gears again. Following our previous discussion about your different strategies, it's clear that returns do not come without risks.

Craig, what do you believe to be the most crucial risk that income-focused investors are overlooking right now?

Craig Schloeffel: In the property space, the most significant risk is supply chain disruptions. We encountered this during the pandemic, as many construction companies were unable to acquire the materials they needed to complete their projects. This resulted in increased timelines and costs, causing many builders, and some businesses even went under. Today, geopolitical factors make it hard for us to predict any disruptions that might occur to the supply of goods.

Chris Conway: Dylan, how about the bond space?

Dylan Bourke: For us, the major risk is the unpredictability of the current political climate. Take April, for example, when equities plummeted nearly 20% from peak to bottom due to the instability of markets. We, as fixed income investors, can at least look ahead a few years to the maturity of our bonds and ask ourselves if we will receive our payment back from this investment-grade company. If the answer is yes, we can bear the coupon and enjoy the gains.

Chris Conway: Don, what risk are you wrangling with?

Dr Don Hamson: The primary risk factor for us is, again, the unpredictability of political updates or announcements, like Trump's Twitter activity. In response to this, we run a diversified portfolio with close to 100 stocks to mitigate the risk.

The biggest opportunities

Chris Conway: Now, let's look at the other side of the coin. Opportunities for the next year. Don, what is the biggest opportunity in your space in the coming year?

Dr Don Hamson: The reality is, if you're able to trade your portfolio actively, you can still get a good yield. This approach becomes even more important now, given the low yields in the market.

Chris Conway: Dylan, what do you think the biggest opportunity in your space will be in the next 12 months?

Dylan Bourke: In Australia, credit spreads are still quite attractive, which creates an opportunity for capital gains.

Chris Conway: Craig, can you share your thoughts about the biggest opportunity in private credit?

Craig Schloeffel: Private credit is an asset class that people are still discovering. Particularly funds that focus on commercial real estate, and particularly the residential asset class like ours, investors can achieve significant diversification across the residential assets class, which is a huge opportunity.

The $100,000 question

Chris Conway: Gentlemen, let’s have some fun. I have inherited some money, let's say it’s $100,000. Why should I invest this money with you? 60 seconds per pitch. Craig, go ahead.

Craig Schloeffel: Investing with us offers protection from market shocks since we are not correlated with many markets. Also, we have hard assets behind all our debt, which safeguards your capital.

Chris Conway: Dylan, your pitch, please.

Dylan Bourke: I would suggest investment-grade credit as it gives you daily liquidity in case you change your mind and spot another investment opportunity. Also, our track record of no defaults in 18 years makes us a safe option.

Chris Conway: Don, your turn.

Dr Don Hamson: With equity, you can get great income, appealing franking credits, and capital growth. We have a 14-year track record of delivering nearly a 12% return, with 9% income as part of that.

Chris Conway: Thank you, gentlemen. I still haven't decided where to invest, but I know it's not going to be crypto.

Huge thanks to Don, Dylan, and Craig. If you found this conversation helpful, please give us a like. Additionally, don't forget to check out the rest of the Income Series available on the Livewire Markets website.

Until next time, take care.