Harvesting Equity Yield: Understanding Factor Investing
Dec 15, 2015
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.