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Research Insight - Harvesting Equity Yield: Understanding Factor Investing

categories: Indexes, Americas, EMEAI, Factor and Risk Modeling, Investing (Investment Management), Portfolio Construction and Optimization, Asia Pacific, Asset Owners, Hedge Funds, Equities, Research Paper, CHIA Chin-Ping, Asset Managers (Quant or Fundamental), Zhen Wei, SAURABH Katiyar, general

Ever since central banks slashed interest rates in response to the Global Financial Crisis, many institutional and retail investors turned to high dividend-paying equities to meet their needs for income. However, a naïve high-yielding equity strategy can expose itself to various “yield traps,” such as those stemming from temporarily high earnings, high payouts or low stock price. We find that the yield factor has tended to perform well during a structurally low and rising interest rate regime, which could become a prevailing macroeconomic regime over the coming years as the Federal Reserve begins its rate-hiking cycle.

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