Resources yields 'too good to be true'

Resources yields 'too good to be true'

Investors should shun the "unsustainably high yields" of the resources sector in favour of "solid" industrial sectors like diversified financials and consumer services, says Contango Asset Management.


In a note to investors, Contango Asset Management chief investment officer George Boubouras said investors should expect a low interest rates and a lower Australian dollar in 2016.

The expectation is based on Contango's view that growth will remain slow with a "soft" outlook for the domestic economy, Mr Boubouras said.

"In this low growth and low interest rate environment, investors should be careful when investing in companies that are offering unsustainably high yields," he said.

"The age old adage is that if it sounds too good to be true then it probably is!

"Although the resource sector appears to be offering an attractive yield at the moment, the underlying revenue stream of the sector is highly cyclical and at the whim of global commodity markets," Mr Boubouras said.

Instead, investors should search for yield in more "solid" industrial sectors, he said.

"We are finding attractive opportunities outside of the top-30 including in the diversified financials and consumer services sectors," Mr Boubouras said.

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