CIO Insights 4Q23: The Next Yield Play
For Chief Investment Officer Hou Wey Fook, IG bonds are the next yield play over dividend-yielding equities and cash deposits for the quarter ahead
Chief Investment Office27 Sep 2023
  • Lower growth & lower inflation point to peak in US policy rates. Rate cuts are however not imminent
  • Environment is not unsupportive of risk assets such as credit and equities
  • Swift normalisation of Fed policy, from zero-bound rates to pre-GFC levels of 5%, favours IG bonds
  • Stay with quality plays that possess moat characteristics & suitable earnings growth
  • Private credit & private equity are long-term "alpha" return drivers in a portfolio
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Dear valued clients,

Our high conviction call to engage with risk assets at the start of the year has paid off. The 60/40 portfolio delivered higher returns than cash deposits in spite of worries surrounding recession as well as fear of rate hikes from heightened inflation.

For the last quarter of 2023, we advocate investors put their excess cash to work in portfolios, employing our Barbell strategy with an emphasis on high quality companies across credit and stock markets.

With rates back to 2007 pre-Global Financial Crisis levels, the near 6% annual coupon income from holding Investment Grade (IG) bonds is preferred over dividend-yielding equities and cash deposits as the next yield play.

In addition, if there are exogenous events that lead to market dislocations, IG bonds would cushion the overall portfolio against any sharp drawdown in equities. This echoes our Liquid+ strategy which prioritises a mix of higher-quality corporate bonds and low-risk government bonds to secure steady yields amid volatile times.

On the growth end of the Barbell strategy, stay with quality plays that possess moat characteristics and sustainable earnings growth. Accordingly, we remain overweight US equities where I.D.E.A. (Innovators, Disruptors, Enablers and Adapters) companies are well represented.

We also believe that investors should build exposure to private assets, where a large contributor of their long-term returns come from value-added “alpha”, and not “beta” returns subject to market direction.

In this publication, we’ve included a thematic analysis on commodities, its outlook, and the role it plays within a portfolio construct.

Do enjoy the read.

Hou Wey Fook, CFA
Chief Investment Officer

Download the PDF to read the full 4Q23 CIO Insights report.


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