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Bright Spots in Search for Yield

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CHICAGO -- Despite a challenging environment in the hunt for yield, three prominent money managers told advisors and investors that it is possible to do better than the historically low rates many have settled for.

“When you are investing for yield, you can find yourself in some pretty dreadful value traps,” said Anne Lester, a senior portfolio manager in JPMorgan's global multi-asset group, at the Morningstar Investment Conference on Thursday.

Panelists also agreed that rates are likely to stay low and that inflation isn’t a major concern in the short term. Pimco's Mihir Worah, the head of the real return portfolio management team, said he’s concerned about inflation looking out two to seven years from now. “Real inflation will go down from here,” Worah said. “The last month has been a perfect storm for inflation and bonds, but that won't last.”

Lester also warned that overly focusing on yield may bring unfortunate total return consequences because prices could decline. “We don’t think the high-yield market will end up in tears and a run for the door,” she said. “But [given the] deterioration of the quality of the underwriting, we think there are better opportunities for the risk in other places.”

Here are some of the opportunities the panel cited:


Though Worah has lowered his exposure to REITs, there may still be an opportunity for investors. REIT yields are lower than historic norms, but have been a better option than government bonds, Worah said. Lester said JP Morgan is currently neutral on REITs. Looking at REITs as equities, they are expensive, but viewing them as bonds, the valuation is not too far off, she said.


Brazilian bonds, a strategy highlighted by Pimco manager Bill Gross two years ago at the Morningstar conference, is another area Worah likes. “In the emerging market selloff, we have found some opportunities in Brazil,” he said.  As wild as the market has been in the U.S., it’s been “crazy on steroids” in Brazil, Worah said. “It’s not comfortable, but if you can stay calm, you can create opportunities out of the volatility.”


Perhaps not surprisingly, from Fran Kinniry, a principal in Vangaurd’s investment strategy group, one tip to get more yield: find lower fees. “One way you can increase yield is if you are in funds with fees of 75 basis points, and you can take that down to 25 basis points, you’ve increased your yield.”

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