We review a new paper looking at the long-term under performance of equities versus bonds. The paper finds that a long duration bond portfolio can replicate the returns of equities (and its dividend strips). This suggests that apparent diversification by pension funds in recent decades towards equities could have been misplaced. Instead, they could have been doubling up on duration risk. Moreover, they find that the current low level of yields could suggest US equities could follow the path of Japanese stocks over the past few decades. Provocative piece and well worth a read.
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(total reading time: 1 min)
We review a new paper looking at the long-term underperformance of equities versus bonds. The paper finds that a long duration bond portfolio can replicate the returns of equities (and its dividend strips). This suggests that apparent diversification by pension funds in recent decades towards equities could have been misplaced. Instead, they could have been doubling up on duration risk. Moreover, they find that the current low level of yields could suggest US equities could follow the path of Japanese stocks over the past few decades. Provocative piece and well worth a read.
Enjoy!
Bilal
Rethinking Stock Valuations Using A Bond Dividend Approach (5 min read) The global economy’s problematic re-emergence from the Great Recession revived interest in Alvin Hansen’s 1939 secular stagnation hypothesis. Hansen coined the term to refer to the period of low growth prospects during the 1930s, which came on the back of slowing innovation and an ageing population.
(Sam van de Schootbrugge │ 24th June, 2020)
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