Investor sentiment in 2012 saw a flight to cash and bonds as they tried to mitigate risks associated with the fiscal cliff, the effect of the leadership transition in China, and the drag of the Eurozone crisis. This year is likely to present different challenges as interest rates remain low and cash struggles to provide acceptable returns.
The answer could well be high yielding global equities, says Stephen Thornber, portfolio manager at Threadneedle Investments. “In the current low yield world, the right global equities have the potential to give investors both a stable source of income, as well as potential capital growth,” he says, “and for investors looking for a reason to exit the save haven assets, that’s a heady mix.”
Thornber says that contrary to what some investors might think, global equities have been relatively stable over long periods of time, and that on a yield basis alone, are still holding up well.
“And while many high yield assets are becoming more and more expensive, many equities, relatively speaking, are cheap at the moment. And what makes high yield global equities even more attractive to us is that we are starting to see pay-out ratios increase in the US, Europe and Asia.” Pay-out ratios compressed following the GFC when many companies sought to protect and consolidate their balance sheets.
Cash assets will not provide clients heading towards retirement with the high returns and income that they are looking for. Investors are encouraged back into risk assets such as equities as a means of taking advantage of the potential upside associated with improving global economic conditions.
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