The global low interest rate environment is here for the foreseeable future, and investors need to beware they do not fall victim to myths about yield, according to Quay Global Investors.
Quay principal and portfolio manager Chris Bedingfield cautioned that high-yield investments may be prone to distortions that could expose investors to unnecessary risk.
“Investors may have to adjust expectations and avoid taking on excessive risk by chasing unsustainable high-yield investments that may be offered,” he said.
Mr Bedingfield said real estate and equities were both prime examples of asset classes that had fallen victim to such myths.
“Low interest rates are not always good for real estate – much in the same way that rising interest rates are not always bad," he said.
“Low interest rates can also distort other investment classes – for example, in equities where lower marginal returns on capital will reduce profits and dividends over time."
The same is true of real estate, Mr Bedingfield said, noting that while many investors feel they are getting a better deal than they would with cash, “what they may really be doing is acquiring the underlying property at a premium to replacement cost”.
Instead of fixating on yield, Mr Bedingfield said investors should focus on businesses “with a defendable market position and long-term secular tailwinds”, adding that stock selection is more important than allocating to yield under current conditions.