Diary of a Financier

Chase for yield is going international

In Capital Markets, Economics on Tue 23 Apr 2013 at 22:29

Today, I made a number of trades to cap-off an active week of accumulation in our portfolio, as documented in my trade reconciliation and all according to my lucid plan. Everyone’s heard the “chase for yield” meme, but we expect it to redouble by going international now, where those dividend names have only just begun.

The theme laced throughout our buying has been the international reach for yield–something that hasn’t happened in earnest yet, at least not in the way that it has in the US, where ZIRP has been the Fed’s explicit, unwavering dogma since 2009. The rest of the world is playing catchup.

Now, it seems Europe will join the brigade, after today’s flash PMIs showed that the economic slowdown has spread to the core countries, like Germany. The bad news of weak Eurozone PMIs was taken as good news by the market, because further interest rate easing by the ECB is now likely–or so the MSM’s attribution claims.

The ECB’s move to ease will only confirm the notion that Europe lags the US by ~4 years in its recovery from the Great Recession. That’s right, I said it: the Eurocrisis is over, and the Eurorecovery has begun. As the spectre of rising US rates will make domestic, income-related securities kryptonite until ~2H14, cashflowing European assets will become all the rage amidst monetary easing.

To wit, we’ve already owned $DPG, a global utility¹ closed-end fund, for the combination of its income generation and cheapness (~11% discount to NAV at purchase). I had previously mentioned the rediculousness of US Utilities’ fundamentals, but a macro perfect storm has helped the domestic sector defy historically rich valuations. Now out from under the yoke of heavy, multi-year CapEx that was spurred mostly by environmental/regulatory compliance, American Utilities have enjoyed tailwinds from both yield hungry investors and cheap feedstock (e.g. Natural Gas). The chase for yield’s power is ubiquitous [for now]. It made me look at a comparison of Global Utilities ($JXI) to US Utilities ($XLU), and I noticed sustained underperformance of the foreign breed since the 2008 crisis, despite having 53% of NAV in US Utilities. JXI has even magnanimously underperformed the EAFE Index ($EFA) over the same period:

JXI v EFA daily (Global Utilities v EAFE)

JXI v EFA daily (Global Utilities v EAFE)

However, the ratios have all seemed to bottom, with JXI/XLU seemingly at a double bottom, so we bought some JXI shares today along with an even bigger purchase of the International Select Dividend ETF ($IDV).

In addition, I finally opened a position in Semiconductors ($SOXX). If there’s any upside left in 2013, Semis have to show some life and play catchup.


With an allocation now around 57/39/4 (equity/bonds/cash), the portfolio’s beta has risen to 0.85 v 0.76 benchmark and sigma 1.26 v 0.54 benchmark.


¹The Duff & Phelps Global Utility Income Fund (DPG) really owns a smattering of income-oriented equity assets, including Telecom and MLP stocks.

  1. […] to our buying spree throughout the past week’s pullback, I spent some time looking at inter & intra-asset […]

  2. […] to our buying spree throughout the past week’s pullback, I spent some time looking at inter & intra-asset […]

  3. Update…
    Affirmative on the “international chase for yield” thesis:

    High-Yield Bond Rally Heads for Seventh Week on Europe Stimulus | Bloomberg
    “The extra yield investors demand to hold speculative-grade securities rather than government debt declined 12bps to 382bps this week… the spread has narrowed 62bps this year…
    “In a low-default world investors are still going to be searching for yield, so they will continue to be attracted to the high-yield space.”


  4. […] -$26.8B, corporate bonds -$5B, Agencies -$5.2B & Treasuries -$40.8B (a record). [Reinforces my thesis about the international chase for yield just beginning, as the Fed starts tapering & ECB still […]


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