Despite economic uncertainties, there are
still yielding assets, including real estate.
Despite economic uncertainties, there are
still yielding assets, including real estate.
Not exact matches
With stocks trading near all - time highs and bond
yields still relatively low, some investors have turned to alternative
asset classes.
This very low market volatility can lead investors to take on more risk, and in a period of
still relatively low interest rates, to «reach for
yield» — that is, buy riskier
assets than one would otherwise, in order to achieve a desired profit or savings goal.
But this masks the reality that equities — and by extension other risk
assets —
still look attractive taking into account that bond
yields are likely to stay historically low.
In a day and age in which regular
asset classes that commercial portfolio managers normally consider have become overwhelmingly bloated in price as a consequence of the persistent and extended cheap money policy of global Central Bankers, an investment strategy of concentration in few select
still undervalued
assets versus diversification is likely the only strategy that will work moving forward in returning significant
yields.
The insatiable search for
yield has driven many income
assets to high valuations, but dividend growers are
still attractively priced at 13.4 times forward earnings, our analysis shows.
While global equity markets as of the end of December 2014
still offered great value in our opinion (especially compared to generally expensive, low -
yielding fixed income
assets), that value is becoming increasingly selective.
Although recently rising prices for stocks, high -
yield bonds, commodities and other riskier
assets would suggest otherwise, investors remain skittish over the
still unresolved and quite concerning risks facing financial markets, such as the U.S. presidential election, the potentially prolonged post-Brexit renegotiations, Italian bank solvency and a slowing China.
This graph from JP Morgan
Asset Management's research team offers some optimism for equities for rolling two - year periods if the Fed starts to raise while 10 - Year Treasury
yields are
still below 5 %.
Even when this bond drops to a 2 %
yield, it may
still have value in relation to other
assets.
Still, some popular high -
yielding asset classes (such as traditional dividend - paying stocks and REITs) could potentially suffer as rates begin to slowly trend higher.
The insatiable search for
yield has driven many income
assets to high valuations, but dividend growers are
still attractively priced at 13.4 times forward earnings, our analysis shows.
As interest rates tends to rise in anticipation of stronger economic growth,
assets which are more sensitive to economic growth (such as high
yield debt) can
still perform well.
Returns can be boosted
still further if the government borrows on a massive scale to pay for past Social Security liabilities, allowing workers to invest a larger percentage of their pay in high -
yielding assets.
Plenty of
assets are currently expensive, but you couldn't call them bubbles by that definition (my wife and I do pay a sub-2 % rental
yield on the Sydney apartment we live in, but you could
still assume enough rental growth to — just — give you something mildly sensible).
Sure,
yields are low but you
still need to count on this
asset class to provide income and reduce your overall portfolio volatility, especially given low rates, heightened global uncertainty and the threat of inflation.
We have reduced the fund's credit exposures in favor of income - oriented strategies on the front end of the curve as well as mortgages and securitized
assets, which we believe should continue to experience strong demand as we are
still in a low
yield environment relative to historical norms.
Why confess incompetence and give back
assets that could
still yield fees?
We were able to recover most of our initial capital tax - free while holding a stable
asset,
still with significant equity built in and a great
yield from the ongoing rental revenue.