Reliance on yield 'erodes' wealth: PM Capital

Reliance on yield 'erodes' wealth: PM Capital

The Australian financial market search for yield has introduced "unintended risk" and a gradual "erosion" of wealth over time, according to PM Capital.


Whilst yield has its place, a continued focus on yield can lead to poor investment outcomes, the Sydney-based equity and income fund manager said.

“The reality is that the strong focus on yield is distorting asset prices,” said PM Capital head of distribution Rob Thompson.

“On many occasions the elements of yield are overvalued or receive too much focus at the expense of other important fundamentals that deserve greater consideration.

“Many companies continue to inflate payout ratios beyond perhaps what they would be under other circumstances, driven by the desire to pacify yield-hungry investors."

Mr Thompson emphasised the importance of portfolio diversification and the benefit of off-shore investments.

“There are very clear diversification benefits and compelling valuation opportunities available off-shore for Australian investors.

“Many Australian investors are aware that local shares have provided better returns than US shares over the last 10 – 15 years, yet few would be aware that the S&P500 (US sharemarket index) has outperformed the All Ordinaries (Australian sharemarket index) by seven per cent p.a. over the last five years (January 2014).

“It is important to look beyond any cognitive bias and remain focused on the fundamentals of the risk/reward proposition,” he said.

 

Reliance on yield 'erodes' wealth: PM Capital
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