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Finding Yield in a 2% World: Strategies for Low-Interest Environments

Last Updated on 10 February, 2024 by Rejaul Karim

Embedded within “Finding Yield in a 2% World” lies an exploration of paramount significance as it unfurls the realization that the largest asset class globally is foreign debt – an insight that often evades many investors.

Particularly pertinent to US investors who frequently allocate scant resources to foreign bonds, preferring capitalization-weighted indexes that accord precedence to countries with the most debt outstanding. Indeed, the palpable question manifests: is there a superior modus operandi for investment in global bonds?

This study meticulously scrutinizes the potential of a simple value approach applied to global sovereign bonds, unveiling its robust efficacy across temporal epochs.

Amidst a landscape marked by exceedingly low, and at times even negative, yields, the discerned potential of a value-based approach promises to infuse a much-needed source of income into a diversified portfolio, reflecting its consequential implications within the current investment ethos.

Abstract Of Paper

Many investors are surprised to learn that the largest asset class in the world is foreign debt. US investors often allocate very little to foreign bonds, and when they do, it is through capitalization weighted indexes. These indexes allocate the highest weighting to countries with the most debt outstanding. Is there a better way to invest in global bonds? We examine a simple value approach applied to global sovereign bonds and find that it works well across decades. In a world of very low and even negative yields, a value approach could potentially add a well needed source of income to a diversified portfolio.

Original paper – Download PDF

Here you can download the PDF and original paper of Finding Yield in a 2% World.

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Author

Meb Faber
Cambria Investment Management

Conclusion

Finding Yield in a 2% World” culminates with a profound revelation that foreign debt stands as the most expansive asset class globally, an often overlooked facet by many investors.

Notably, US investors exhibit a propensity to allocate minimal resources to foreign bonds, typically via capitalization-weighted indexes, which inherently prioritize countries with the highest debt volumes. The imperativeness becomes evident: is there a more efficacious means to engage in global bond investment?

This study espouses a meticulous exploration of a simple value approach vis-à-vis global sovereign bonds, revealing its commendable efficacy across temporal epochs.
Emphatically, within a milieu besieged by exorbitantly low, and at times adverse, yields, the discerned potential of a value-based approach emerges as a poignant antidote, offering a vital source of income to a diversified portfolio, symbolizing its pertinence within the contemporary investment landscape.

Related Reading:

The Effect of Treasury Auctions on 10-Year Treasury Note Futures

Carry investing on the yield curve

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