Investors pile into currency-hedged European equity

Consider the following: you come together with your investment committee, look at macroeconomic fundamentals, GDP growth trends and companies’ earnings forecasts, and you come to the conclusion that European equities are far more attractive than stocks elsewhere. However, you and your colleagues also agree that, with a rate hike in the US this year ever more likely and European monetary policy to remain loose, the dollar will come closer to parity with the euro. So what do you do? You buy currency-hedged share classes.

High yield and equities – in the same classroom?

Equities and high yield bonds follow each other wherever they go, both when it comes to fund flows and returns, as we discussed last week on this site. The Barclays Global High Yield Index even followed stocks down on Monday in the aftermath of the breakdown of talks between Greece and its creditors. So, if high yield bonds behave more like equities than like investment-grade bonds, what does that mean for portfolio construction? Should the seemingly inseparable twins be placed in the same classroom or is it better to separate them?

Part of the Bonhill Group.