Investors who have been embracing the low-volatility/high-dividend/utilities sector trade should be aware of how much “bond duration” or interest rate risk they may have added to their portfolios. If interest rates continue to rise, these three areas of the market could face a tough period of performance and compound poor returns from bond allocations, in our view.
Looking around the globe today, with interest rates in Europe and Japan at depressed, even negative yields, global investors are searching near and far to achieve positive cash flows from their assets. This global hunt for yield has implications across a variety of asset classes, creating a surprising valuation discrepancy in the U.S. dividend-focused market.
European markets, have disappointed investors this year, to put it mildly. This offers all the more reason to re-engage with portfolio allocations and dissect which factors have been driving returns and if investors’ current allocations can deliver the best possible exposure to the markets.
The search for income has dominated many investors’ minds over the last year. In the absence of higher-yielding fixed income assets, one way investors have met their income needs is through equity markets. One unique corner of the equity universe that offers both yield and diversification and that we believe should not be overlooked is global real estate.
In a year of so many negative headlines emanating from Europe, it may come as a surprise to some that eurozone stocks, denominated in euros, are virtually unchanged for the year. With investors bracing for a potential recession in France and Italy, equity markets of individual European countries are starting to see some meaningful differentiation. One of those markets is Germany.