Low yields have presented a significant challenge to investors for a number of years. We see a moderate US-led normalization which is slow and expect inflation and interest rates to reach levels well below the average of past recovery peaks. While the positive broad-based global upswing is likely to continue, yields are still at low or negative levels and we expect them to stay low in Europe and Japan in the foreseeable future.
In our view, there are three paths which could offer potential returns to investors, while endeavoring to avoid assets with low yields and possibly negative returns.
- adding to higher yielding bond strategies given that such strategies can offer attractive yield pick-up relative to developed world government bonds
- within equities, a focus on unconstrained strategies capable of generating returns in differing environments due to more active and flexible investment approaches
- increasing exposure to alternative asset classes, such as hedge funds, real estate, and infrastructure, which can help to improve the overall risk-adjusted return potential of investors’ portfolios
In summary, the low yield backdrop certainly presents all investors with challenges. But even in this environment, there is still a broad range of investment solutions that mean investors’ experiences do not have to be negative - even if some government bond yields still are.