Yield investors need to remain alert

Yield investors need to remain alert. The yield trade is likely to outperform in 2015 as investors continue to pay a premium for income in a low growth and low inflation environment. However recent share price returns and valuations for yield stocks do heighten the risk of capital losses and further share price gains via yield compression are unlikely to be significant. Yield investors need to watch the US bond market closely in 2015 as any change to The Federal Reserve's forward guidance may reveal complacency in the bond market's implied Fed Funds Rate forecast. This would have negative ramifications for the yield trade in Australia. Domestic cyclical stocks will have a mixed 2015. Retail and media still face structural challenges and a consumer that has remained stubbornly weak. Building Materials are likely to benefit from improved sentiment as interest rate cuts underwrite the sustainability of the current housing cycle.