FSA Guide to the Art of Income Investing - HK Version 2016 | Page 9

THE HORIZON 45% P World REITS vs US Treasuries 3 year performance 30% 15% 0% 28/2/13 31/10/13 30/6/14 28/2/15 31/10/15 -15% Index : The BofA ML 1 10 Year US Treasury TR Index : MSCI World/REITS GTR 315%year performance 10% 5% 0% 28/2/13 31/10/13 30/6/14 roperty remains a solid opportunity for income investors, with property securities in both the UK and US continuing to perform well in terms of yields versus US government debt. With tenant demand remaining high and vacancy rates low the fundamentals of the market remain strong, despite interest rates beginning to rise in the US and showing the potential to rise in the UK. In Asia, Singapore REITs remain attractive thanks to a stable economy and strong regulations, although in Hong Kong the picture is less attractive, with a reduction in visitors from mainland China and weaker domestic consumption posing a threat to the retail sector. Elsewhere in Asia, Japan is balanced between a weak household sector on the one hand and a stronger corporate sector on the other, with zero interest rates helping to shore up the market for property securities. In Europe, strong investor demand fueled by continuing low interest rates has led to overinflated property valuations. This, coupled with limited tenant demand, is creating something of a headwind for European property securities. T US High Yield vs US Treasuries 28/2/15 31/10/15 -5% PROPERTY INCOME GLOBAL HIGH YIELD he high-yield market continues to be supported by the onslaught of yield-chasing investors. However, given the precarious nature of the commodities sector in particular, single-digit returns are more likely to be the mark of high-yield securities than their erstwhile double-digit returns. While defaults are predicted in high-yield energy stocks in particular, that risk is already broadly priced in. If the defaults cannot be contained within the energy sector, however, the impact could be more significant. With everything from oil services to consumer-facing industries likely to be impacted by persistently low commodity prices, default risk could become more widespread. While the US Federal Reserve has begun the process of raising interest rates, indicating that economic stability in that country at least is assured, turbulence remains an issue across the globe, with the threat of a global recession remaining. In light of this, a wave of risk aversion could hit the high-yield sectors, as investors who have taken on more risk in their bid to achieve some kind of a return take flight back to quality. Index : The BofA ML 1 10 Year US Treasury TR Index : The BofA ML US High Yield TR www.fundselectorasia.com Fund Selector Asia Guide to the Art of Income Investing March 2016 09