Tight yield spreads a long-term phenomenon
The head of a major global fund manager has predicted the tight yield spread markets are currently experiencing worldwide are likely to last for some time to come as an increasing number of economies are forced to deal with ageing populations.
Principal Global Investors chief executive Jim Mccaughan said: “The demographic change in the developed markets, with more and more people getting closer to retirement and moving towards the time of life when they want to turn assets into income, I think, is one of the main reasons for the structural excess liquidity in the various economies.
“That’s why spreads are pretty narrow compared to where they used to be in a variety of asset types,” he added.
As such, Mccaughan feels investors will continue to find it difficult to access products that will produce good yields, as demand will far outweigh supply in this area.
However, while this is an issue that is currently prevalent in the developed world, China also has a rapidly ageing population that will likely perpetuate investors’ demand for yield for a few decades to come.
“The current boom in investing in China will switch quite rapidly towards yield-based investments over the next decade or so,” Mccaughan predicted.
Due to this situation, Mccaughan said Principal Global Investors was currently focusing its attention on ways to help clients turn their assets into income.
To this end, in the domestic market the fund manager’s most successful offering has been the Global Strategic Income Fund, which attempts to deliver a return of 2 or 3 per cent over the cash rate.
Mccaughan believes Principal’s product development in the Australian market will place the organisation in good stead to service other markets in the near future.
“A lot of the ideas we’ve developed in the Australian market will, I think, have global applicability. It’s a market that shows trends very early, and techniques developed in Australia often find their applicability elsewhere, so it’s a very good market for us to be involved in as a global firm,” he said.
Recommended for you
After seven years at the company, Iress’ chief technology officer for wealth management APAC, Anthony Gerrits, has departed as the firm commences a search process to fill the role.
With advice firms thinking about scaling up in 2025, research has detailed the main avenues financial advisers say they have used for successful recruitment.
The board of Insignia Financial has reached a decision regarding the possible acquisition of the firm by US private equity giant Bain Capital.
Six of the seven listed financial advice licensees have reported positive share price growth in 2024, with AMP and Insignia successfully reversing earlier losses.
