For investors chasing yield the outlook for 2016 is not good. Returns from fixed income will continue to be below average, while investors who dived into global corporate bonds – a good performer in 2015 – will be relying on another leg down in the Australian dollar to boost their returns.
That said, global corporate bonds that didn’t hedge the Australian dollar returned a stellar 10 per cent in 2015, says Philo Capital, while hedged they still managed to deliver 4 per cent.
Both compare well to the 2 per cent generated by the local government bond market when measured against the UBS Composite Bond Index. But it’s unlikely the dollar will fall another 25 per cent like it has over the past year or so.
But to garner any sort of additional yield, investors will have to turn to hybrids, junk bonds or of course shares.
It’s well past time of course but the AFR is still banging the ruptured yield drum:
For investors chasing yield the outlook for 2016 is not good. Returns from fixed income will continue to be below average, while investors who dived into global corporate bonds – a good performer in 2015 – will be relying on another leg down in the Australian dollar to boost their returns.The accompanying graph shows that shares are still hard to ignore, despite the benchmark S&P/ASX 200 posting its worst start to the year in living memory in January and trading at a 2½ year low.
How much more capital do we need to lose before shares become more easy to ignore?
The yield trade is over. It’s been killed in the miners and the banks are next. The next trade in yield is not yield at all, it’s capital growth as bonds rally on the return of rate cuts.
It’s well past time to be worried about ‘return of capital’ not ‘return on capital’.
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