The hunt for yield during COVID-19
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The search for yield is proving to be an endless challenge for investors during the market crisis brought on by the coronavirus (COVID-19) pandemic.

Finding attractive yield has become more difficult than ever as central banks around the globe have coordinated simultaneous interest rate cuts, and companies have reduced dividend payouts due to the economic impact of the lockdowns.

Prior to COVID-19, historic bond yields were already subdued as central banks kept interest rates at ultra-low levels to support the economic recovery after the global financial crisis in 2008.

On 10 June 2020, US Federal Reserve (Fed) chair Jerome Powell stated, "We're not even thinking about thinking about [sic] raising rates ... we are strongly committed to using our tools to do whatever we can for as long as it takes."

Statements like these reinforce the notion that ultra-low interest rates are here to stay for some time.

Self-managed superannuation funds and not-for-profit organisations that rely on yield to distribute income now face a dilemma. That is, as cash rates and bond yields have been compressed to all-time lows, should they chase yield and move up the risk curve?

This paper discusses how COVID-19 has impacted certain securities which many investors have previously relied upon for income generation, and explores different investment options that offer yield with consideration to the risks involved.

Further, it argues that diversification and a focus on strategic asset allocation are essential for generating a sustainable income stream, and considers other asset classes for diversification and reliable income generation.


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