If the amount of AUM in yield and income related ETFs is anything to go by, it would seem that the search for yield is alive and well. By our count the amount of ETF AUM in yield product has surged to over half a trillion dollars. And it’s worth highlighting as you check out the chart that not all yield is created equal. Indeed the lust for investment income has seen a lot of investors stretching into assets with increasing liquidity risk, credit risk, commodity risk, interest rate risk, and even equity market risk.
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With demographic drivers and still low cash rates around the world the income asset bubble could go on for a while yet. Particularly as US bond yields look to be rolling over. Indeed bond yields are going to be a key risk driver for income assets, and for now they are sort of in limbo at a point where a trend change from down to up has yet to really take hold. The impact of Fed balance sheet normalization or QT [Quantitative Tightening] could cause shockwaves through yield product when it comes, so it’s worth remembering the point that income assets aren’t always low risk assets…
