"The derivatives will have the effect of 'topping up' the fund's income when the assets fail to produce enough of it naturally, but will sacrifice some of the returns when they are greater than a certain level.
"These funds will normally have a specific target income yield."
Not all managers use derivatives or such portfolio protection; many rely on diversification and managing the associated risk.
Stephen Crewe, director of Fulcrum Asset Management, has expressed the view the "obvious advantage" of mitigating risk through portfolio protection and diversification, is that if one can maintain capital while others are suffering drawdowns, opportunities emerge to make investments at 'fire sale' values.
Commenting in FTAdviser, Mr Crewe acknowledges: "Absolute return strategies can be implemented in ways that generate real, distributable income while following an identical underlying investment strategy."
Alternatives
Depending on how much the client is willing to pay for the management of the underlying funds in the portfolio, and depending on their risk tolerance and investment time horizon, other assets can be considered.
One of the most talked-about recently is property. This can have significant returns in terms of rental yield, far above the 0.5 per cent bank base rate - and even lower returns on cash savings accounts - and currently outstripping the CPI, at 2.7 per cent and on par with the RPI, at 4 per cent (as at 15 March).
For example, according to Savills, prime City (London) rental yield on commercial property is 4 per cent, while Knight Frank puts the average residential property yield across the UK's main cities between 4 per cent and 4.25 per cent, as at 28 February 2018.
Infrastructure, aircraft leasing and litigation finance are also becoming popular within some multi-asset portfolios, as well as in some self-invested personal pension and small, self-administered schemes for income-hungry pensioners with a high risk appetite.
Tim Morris, IFA for Russell & Co Financial Advisers, commented: "In addition to the standard fixed interest, alternatives are increasingly being used as a diversifier.
"Fund managers with serious financial clout can invest in several multi-million pound infrastructure projects. This can produce alpha within their portfolio."
He caveats the use of these by adding: "On that topic, I wouldn't want exposure to all infrastructure firms. Just look at the knock on effects of the Carillion debacle."
Additionally, not all multi-asset managers are comfortable with ramping up the risk simply to chase yield.
Mr Szechenyi says: "We would not invest in more esoteric areas of the market such as litigation finance or aircraft leasing, where headline yields might look optically attractive but do not necessarily compensate you for the underlying risk."
