A dividend strategy that includes a low volatility screen may help ease investors’ valuation concerns
Record-low interest rates have pushed some income-oriented investors into risky asset classes as a means of increasing both yield and total return. This has helped equity market valuations reach levels not seen since the recession of 2008. The chart below depicts the forward price-to-earnings (P/E) ratio for the S&P 500 Index over the trailing five years through Aug. 31, 2016.
Equity valuations climbingContinue
Fixed income investors may experience less risk by investing in US dollar-denominated emerging market bonds
As one of the best-performing market segments so far this year, commodities appear to be in the early stages of another seven-year cycle. With the International Monetary Fund expecting emerging market economies to expand by 4.1% in 2016, and many of these same countries dependent on commodity exports, fixed income investors may be considering diversifying their bond holdings into emerging markets.1 Currency risk – the risk of an investment’s value declining due to foreign currency fluctuations – can be a concern for investors making the plunge into emerging markets. In my view, however, there are ways to mitigate this risk — with the right tools.Continue
Senior bank loans may offer high yield potential with limited exposure to risky energy credits
2015 was a tough year for energy producers. Non-investment grade energy shares were down 30% on the year – with the lowest-rated oil, gas and coal producers dragging down the sector as a whole.1 Although commodity prices have rebounded nicely thus far in 2016, smaller energy producers continue to default at rates not seen in decades.2
Investors seeking yield opportunities, but wary of assuming undue levels of risk, may wish to consider senior bank loans. Senior bank loans typically have limited exposure to the riskiest energy producers and rank high in a borrower’s capital structure, giving lenders first claim on a company’s assets and earnings in the event of a default. They also feature floating rate coupons that can adjust upward as rates rise.