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Shift from high yield products

Added 15th January 2015

High yield bonds look expensive and investors should review their portfolios and consider other income-generating vehicles, according to JP Morgan Asset Management.

Shift from high yield products

In search of yield, investors have flocked to high yield bond products.

Tai Hui, managing director and chief market strategist for Asia, cautioned over investments in the high yield bonds segment due to the possibility of lower returns amid higher volatility this year.

“Valuation of these bonds are relatively expensive. They will still generate respectable returns, but the era of high single digit to double-digit returns from high yield corporate bonds is probably behind us.

“Because of the high valuation, the volatility in the high yield bond market will also increase, as we saw in some of the issuances from energy companies recently,” Hui said.

Nonetheless, he believes the default rate will still be at a manageable level.

Hui said the demand for high yield products is unlikely to decrease during the year, however, investors will be more tactical in thier allocations depending upon the newsflow.

"Investors will be reacting to individual pieces of news.”

Overexposed to high yield?

Steven Billiet, chief executive, said investors with overexposure to high yield products need to review their investment portfolios.

Billiet recommended investors opt for multi-asset propositions that aim to dynamically alter asset allocation strategies according to the market dynamics, but at the same time limit the downside risk to the portfolio. 

“If you are looking at the yield component, then you should not feel you will get it only from high yield.

“Diversify your portfolio into dividend yielding stocks. It is a great time for investors to look again at the portfolio and if they are overly exposed to high yield, then they can probably move into multi-asset income strategies.

“Multi-asset will still have a component of high yield, but it will be far more exposed to other assets such as real estate investment trusts or dividend-yielding stocks. And, it is a diversified source of income.”

A recent survey by JP Morgan Asset Management reflected this trend, with multi-asset funds witnessing the biggest shift in asset allocation among Singapore retail investors.

Reflecting the investors’ hunt for income, the top consideration while investing in multi-asset funds was yield, receiving 58% of the votes from a sample of 509 respondents. Flexibility of asset allocation (35%) and volatility of the fund (35%) were the other top considerations.



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