Historically the search for yield has often led to a compromise in the risk/reward proposition, introducing unintended risk, which has on occasions led to the...

PM Capital

PM Capital

Historically the search for yield has often led to a compromise in the risk/reward proposition, introducing unintended risk, which has on occasions led to the gradual erosion of wealth over time or capital losses over shorter periods. Two examples being the rout of Australian government bonds in the 1970's (gradual erosion of wealth due to stagflation) and the sharp correction in Listed Property Trusts last decade, that revealed payout ratio's had been inflated by gearing for several years prior, which proved to be unsustainable. On many occasions, elements of yield are overvalued or receive too much focus at the expense of other important fundamentals that should be given greater consideration. There is no doubting the benefits of regular cash-flow from investment securities, however, these should be considered in the context of the overall risk/reward proposition and appropriate asset allocation. The reality is that the strong focus on yield is distorting asset prices. Read the full paper; (VIEW LINK)


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