Get real when chasing yield: Quay Global Investors
Investors need to be realistic in their search for yield and avoid making mistakes such as becoming over-exposed to risk, according to Quay Global Investors.
Quay Global Investors' principal and portfolio manager, Chris Bedingfield, said investors needed to accept that central banks around the world would continue to maintain low interest rates policies for some time.
It would likely be a while before economic confidence returned and governments and central banks recognised that quantitative easing was not stimulating the economy, nor did it generate inflation.
"Until then, investors may have to adjust expectations and avoid taking on excessive risk by chasing unsustainable high yield investments that may be offered," he said.
He also said the low global interest rate environment had also created some myths among investors.
"For example, low interest rates are not always good for real estate. Much in the same way rising interest rates are not always bad."
Low interest rates could distort other investment classes: for example, in equities, lower marginal returns on capital would reduce profits and dividends over time, he said.
Another example was in bank stocks. They had been favoured investment choices amid falling interest rates, given they had high returns on equity, supported by high dividend yields and growth, he said.
"As Australian interest rates head lower, the risk is that bank margins may contract as the net interest margin will be very hard to sustain," he said.
However, investors needed to look past yield and concentrate on good underlying businesses that had defendable market positions and long-term secular tailwinds, or investors could buy underlying real estate at a discount to replacement cost.
But investors should remember that stock selection was far more important than chasing yield, Bedingfield said.
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