Asset allocation: US equity versus high yield

The divergence in performance of US equities and high yielding bonds is set to continue, as several headwinds loom large in the face of high yield, explains Natixis manager Franck Nicolas.

During the initial phase of the US recovery, equities and high yield moved very similarly. By contrast, since mid-2012, equities have been accelerating more quickly, and have outpaced the credit market by a decent margin. Asset allocators should expect this trend to last. Explaining the divergence There are two explanations for this, and the first is relative valuations. On the one hand, equity valuations appear attractive, particularly when dividends are taken in to account. Dividend yielding equities have offered a consistently more attractive remuneration than rates on five-y...