This article was authored by Endowus in collaboration with Allspring Global Investments.

With the US Federal Reserve’s recent comments signaling a potential shift towards rate cuts, investors are on edge. Those who've been comfortable with the yields from cash and high-grade bonds are now being forced to re-evaluate their portfolios. The outlook of lower risk-free rates is prompting many to look for sustainable income solutions beyond traditional fixed income assets.

This is following three successive cuts in late 2024. Since then, the central bank has been on a “pause.” A 25 basis point interest rate cut in the September FOMC meeting could signal the beginning of a new rate-cutting cycle. This is a critical inflection point, as a drop in risk-free rates makes the income from dividend-paying equities more attractive on a relative basis.

In a recent conversation, Wai Lee, a portfolio manager at Allspring Global Investments, offered a timely perspective. He outlined a global equity income strategy designed to navigate this very transition.

Read more: Myths of dividend investing, debunked

The enduring power of equity income: More than just a payout

While the market's focus on price appreciation has been overwhelming, especially as mega-cap growth stocks continue to lead the way, income remains the most stable component of total return. 

Lee highlighted that over the past 25 years, the MSCI All Country World Index has provided an average annual yield of about 2.4% with a remarkably low volatility of just 1%. This is a stark contrast to the index’s price return, which had a volatility of 18% over the same period.

Lee says: “With 10-year Treasury yields still attractive, many investors question the need to take on equity risk. In fact equity income has a compelling argument: The persistence of dividends.

He continues: "Unlike high-yield bonds, which carry default risk, well-managed companies rarely disappoint on dividends. While cuts can happen, as we saw during the COVID-19 pandemic, they are far less common in other times in the cycle, given that the investor has done the ‘homework’. This could provide a level of predictability, as an equity investor."

For Lee, this consistency is a core feature of his strategy. A portfolio built on this foundation can be a versatile tool for a varying profile of investors. In an investor’s working life, income can be “left” to be reinvested and compound wealth, allowing for long-term capital appreciation. In retirement, that same income can be “taken” to fund living expenses while the portfolio continues to grow. 

A different kind of income strategy

The decision to take on equity risk becomes especially difficult when investors are faced with a fork in the road: pursue stocks for high growth, or lean into them for steady income. It’s a choice that’s grown more consequential, especially over the past decade. The MSCI ACWI and MSCI ACWI Growth indexes have consistently outpaced their high-dividend counterpart by more than 300 and 500 basis points per year in the past 10 years, respectively. 

This persistent underperformance of income strategies reflects a deeper structural bias. Income portfolios tend to gravitate toward mature, dividend-heavy companies: businesses that favour distributing profits over reinvesting in innovation, expansion, or transformation.

In a market increasingly driven by AI disruptions and leaps, from AI chipmaker Nvidia repeatedly hitting new stock price highs to the rise of China’s DeepSeek, an AI startup attracting attention for its competitive performance and cost efficiency, the momentum behind AI continues to build and accelerate. Investing in this fast-moving sector has been a challenge for many traditional income strategies, but not for Lee’s approach. 

The Allspring Global Equity Enhanced Income (GEEI) strategy aims to deliver an appealing mix of both income and total return. What makes it unique is its flexibility: up to 10% of the portfolio can be allocated to non-dividend-paying stocks. This opens up high-growth opportunities that traditional income strategies would typically miss.

The portfolio is also actively managed to maintain a beta of one relative to its benchmark. This ensures the strategy fully participates in market upside while staying true to its core income objectives.

Plus, additional income from index options overlay

The GEEI strategy is built to be resilient by drawing on diverse sources of income and balances income with a focus on total return. One of the fund’s primary sources of income, beyond dividends, is an actively managed options overlay. 

The team specifically sells covered call options on various US and non-US indices and ETFs. By writing options on these broad market indices—rather than on the individual stocks they hold—the fund receives valuable premiums to boost its distribution.

As Lee points out, a potential risk for some income strategies is getting locked into fixed distribution targets. In a falling interest rate environment, this can force managers to realise gains or give up significant upside by selling options on their specific stock holdings.

The GEEI fund avoids this by selling calls on indices therefore preserving the potential for capital appreciation from its carefully chosen equity portfolio. The premiums from the index options serve as a flexible income booster, while the underlying stock picks are free to generate excess returns. It's a compelling case for a strategy that is both versatile and robust, designed to serve investors who navigate market dynamics that are constantly shifting.

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Allspring Global Investments™ is an independent asset management firm with more than $611 billion in assets under advisement*, over 20 offices globally, and investment teams supported by 370+ investment professionals. Allspring is committed to thoughtful investing, purposeful planning, and inspiring a new era of investing that pursues both financial returns and positive outcomes. For more information, please visit www.allspringglobal.com.

 *As of 30 June, 2025. Figures include discretionary and non-discretionary assets.

Endowus has three funds from Allspring (as of 31 August 2025) and they are the Global Equity Enhanced Income Fund, the US All Cap Growth Fund, and the Climate Transition Global Investment Grade Credit Fund, available for Cash and SRS funding sources. Get started building your own portfolio with these funds on the Endowus Fund Smart platform.

‍The article was an interview between the Insights team at Endowus and Wai Lee, senior portfolio manager and the head of Systematic Research for the Multi-Asset Solutions team at Allspring Global Investments. The views expressed in this article are attributed to Allspring in its entirety. ‍