The yield trade and the RBA's easing bias - More than meets the eye

The yield trade and the RBA's easing bias - More than meets the eye. The RBA confounded market expectations by leaving the overnight cash rate unchanged at 2.25% at yesterday's Board meeting. But many will interpret the RBA's adoption of an explicit easing bias as a harbinger for further out-performance of high yielding stocks. On closer inspection, I show that high yielders have endured a period of under-performance in recent years. Both valuation theory and price patterns suggest that investors perceive high yielders to be riskier than low yielders. Consequently, the under-performance of high yielders reflects the fact that investors have eschewed risk from their portfolios. For investors seeking to invest in high yielding stocks with strong price momentum outside of the banks, utilities and REITs, only three candidates meet these criteria at present: CCL, IFL and JBH. (VIEW LINK)

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