Thought Leadership

Avoiding a mirage in the high-income desert

Generating a sustainable yield across asset classes

23.11.2017

A decade on from the onset of the financial crisis, the search for yield continues unabated. In an environment of abundant global liquidity, low bond default rates, restrained market volatility and historically low yields, the appeal of high levels of headline income is understandable. Our 2016 Global Investor Survey also found that, despite low yields, a surprisingly high 41% of respondents were seeking an income yield of at least 8% and over half were seeking at least 6%1.

Perhaps less well understood is the considerable change there has been in the characteristics of the securities that generate what is now seen as an acceptable level of income. This evolution applies to both fixed income and equities alike, albeit for different reasons. Put simply, an increasing proportion of yield is being generated by a diminishing pool of securities across mainstream asset classes. With an eye to the future, a closer look at the conditions needed to sustain high levels of income without incurring capital losses raises some interesting questions.

In this note we take a cross-asset approach, looking principally at fixed income and equities.

1Schroders Global Investment Study, 2016