Chris Ambridge of Provisus outlines the reasons why negative bond yields have become a feature of the modern investment environment
Bond market yields are one of the great anomalies of the investment world in 2016. Putting your money into fixed income currently represents not much more than cold storage. The amount of countries that have negative yields on government bonds continues to grow, which clearly doesn’t say much for the equity markets.
Chris Ambridge is CEO of asset manager Provisus. Having started his career at IBM Canada in 1987, he built his reputation in the investment world with stints at Hodgson Roberton Laing, Coutts Limited and First Asset Advisory Services before arriving at Provisus in 2007. These days his clients are exclusively high-net-worth and those with $1 million or more in assets are growing more and more anxious about how to protect their wealth.
“It’s now the case that 35 per cent of government bonds around the world have negative yields,” says Ambridge. “Over 72 per cent are less than 1 per cent in yields. There is not a lot of income out there for clients, especially if you consider the impact of inflation and fees.”
While an asset where you actually lose money if held to maturity sounds counterintuitive, bonds are having no trouble finding buyers, both in Canada and worldwide. According to the Provisus head, this phenomenon is simply a symptom of a global economy that continues to agitate.
“There are a lot of worries out there,” he says. “The economic situation in Europe and China to a lesser degree has people interested in safety. Then we have the US, which is looking to increase its interest rates because it is growing so fast. It’s a strange marketplace.”
Negative yield bonds, while historically not having much precedent, are also starting to spread to other areas of investing. Ambridge explains this perplexing trend.
“There are banks accounts now in Germany and Switzerland where you pay the bank to hold your money,” he says. “It’s not just in bonds, it’s in the retail market. People are looking for some place to park their money because they don’t trust the world economy.”
Clearly finding returns is in this environment is pretty difficult; difficult, but not impossible. The savvy wealth managers and investors will always find a way, and for Ambridge he already see potential avenues to pursue.
“The materials and energy sectors have really been beaten up, so they are inexpensive and are value situations,” he says. “On the other hand, utilities, telecoms and banks are high yielding stocks, so they are very expensive right now. That means people are looking outside the traditional safety net to smaller and mid-cap stocks, and that is where growth will come from.”
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