With this week’s equity market nearing all time highs reached in May of 2015 and U.S. Treasury yields remaining near historic lows1, investors are called upon to harvest allocations that may be incapable of delivering forward return targets.In fact, with corporate profits showing year over year declines and equity markets entering, according to The Stock Traders Almanac, the least rewarding 6 months of the year, the call to action becomes more urgent.
I believe that the proliferation of “mutual funds in a box” allocation strategies has relegated many portfolios to a forward expected return well below the targets of most financial plans.
The evidence? One measure of portfolio reliability is the actual cash flow produced net after all costs. The S&P 500 dividend yield is currently about 2%2 as is the Vanguard Total Bond Market Index also at about 2%3.
The solution? After 30 years, I am convinced that one of the most effective estimates of forward returns is the actual cash paid by the underlying assets. This week’s program explores the assets that are currently yielding over 6%.
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Investors are invited to improve decision making with a comprehensive tour of global economics, indicators, and actual results.
Headline Round Up!
- The Venezuelan Beer Shortage!
- Hedge Funds Suffer Worst Outflows Since Mid 2009!
- Profit Margins Declining!
- Weaker Dollar Corresponds to Commodity Rally!
- Oil Spikes Back Over $44!
- Southwest Airlines Flying High!
- Liquid Natural Gas Boats Head for Europe!
- Saudi Arabia Wants Your Cash!
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NetWorth Radio’s Powerful Dallas Business Leadership series!
Matt Craft Executive Vice President, Lincoln Property Company. Matt is responsible for sourcing and executing corporate and institutional office real estate transaction services in the Southwest United States. With over 20 years of real estate experience, Matt brings a unique perspective to his clients because of his background in representing both tenants and landlords. Prior to joining Lincoln Property Company, Matt was a Managing Director in Jones Lang LaSalle’s tenant representation group, representing national tenants such as UHG, New York Life, IPG, JPMorgan Chase, and BNY Mellon.
Walker LaFitte Associate, Lincoln Property Company. Mr. Lafitte is a driven and energetic sales professional. He is currently responsible for sourcing and executing corporate transaction services in the Dallas/Ft. worth area. Previously, walker was with Case Commercial Real Estate Partners where he was responsible for managing and executing real estate transactions for national account clients. Walker graduated from the University of Arkansas in 2011 with a bachelor of marketing degree.
Q2 2016 MGAM Client Updates
The first 3 months of 2016 appeared to reflect significant changes in the perspective of investors, apparently moving to extreme pessimism and back to realistic optimism. The corrections of 2015 and early 2016 culminated with what could be diagnosed as a temporary freeze in global credit markets, based upon the pricing of US high yield corporate bonds at the February 11th discount of 75% of par value as measured by HYG, the Dow Jones Industrial Average twice approaching 15,500, and the concurrent implosion of domestic oil prices to $27 per barrel.
Springtime appeared to change perspectives: anxiety melted, trees bloomed, and investors bought investments that pay reliable cash flow as evidenced by increases in the Utility Index and US Corporate High Yield Index:
What is a yield panic?
One relevant scenario is 2012. The premise that interest rates could stay lower for longer was put forward, prior to 2012, by Scott Minerd of Guggenheim. During 2012, the values of high cash flow assets paying substantially more that U.S. Treasuries generally rallied in price. It appeared that investors, realizing rates did not have to rise, began to purchase allocations that could provide yield advantages.
Conclusions for 2016-2017
March appears to indicate that the 2012 yield panic scenario could continue to push prices up for high cash flow assets. While discounts to maturity value under control are available, investors should continue to consider that capital flows at the end of the first quarter of 2016 could signal opportunities for the remainder of this year as well as 2017.