As Edward Chancellor outlines in his epic history of interest rates, The Price of Time, the hunt for higher yields is often associated with low absolute rates, and higher risk appetites. This chimes with a key element of pricing in any market: higher yields mean lower valuations and more risk.
That leaves a bit of a paradox in this week’s stock screen. Our High-Yield Low-Risk screen, which has been running for 13 years, is designed to find stocks that offer investors a nice income – in the shape of an above-average yield – with below-average share price risk, which we might describe as a proxy for capital preservation.
What’s more, for most of the screen’s history, interest rates were very low, and the 2010s were defined by the rampant hunt for yield. In a historical inversion, some investors did very well out of buying bonds for capital gains and holding equities for income. That logic has now changed. Skip forward to March 2024, and interest rates remain stuck at multi-year highs, risks remain pronounced and yield-hungry investors appear to have a lot more options than just stocks.