WP was lucky enough to be in the same room as Dr. Woody Brock last week when the famed economist spoke to a small group of invited guests about the investor’s valiant search for yield; it’s not going to be an easy one.
The writing, according to Brock, is on the wall. Equities have had their big run. Going forward most investor returns will come from dividends and other forms of yield-producing income rather than capital gains.
The question for advisors: How are you going to keep your clients happy in this scenario?
Recently, we asked Daniel Solomon, lead portfolio manager and CIO with NEI Investments
about this vexing situation. With government bonds going negative in places like Denmark and Switzerland, is it even possible for investors to generate cash from fixed-income?
“People are asking, ‘How do I get the yield I need?’ The government of Canada bond yield is 1.37%. With inflation at 1.5%, you have to be willing to lose money if you want that asset class. What we wanted to do is engineer a fund that generates more dividend per year.”
Solomon’s talking about NEI’s Global Strategic Yield fund, which got its start this past December. The investment objective of the fund is to provide investors with income and long-term capital appreciation by investing in a diversified mix of yield generating equity and income mutual funds around the world.
“The eight different sleeves in this fund tap different areas that generate yield. You can get up to 8% covered calls. You can find government bonds, particularly outside of Canada, that pay much higher. There are some pockets that have great profiles,” says Solomon. “By doing this in each sleeve, we can generate much higher total yield, 4.33% – that’s higher than anything you can put together. You need to get yield from everywhere.”
Solomon’s approach is clearly driven by investors’ thirst for yield.