High-yield equities might see demand as Fed hike expectations fall, HSBC says

Access to reliable proprietary data can offer valuable insights into possible investment opportunities and equity strategists at HSBC thought they had detected just such an instance as expectations for Fed tightening decreased, thanks to the data they had on the holdings of international investors, the broker´s analysts told clients.

Groups of equities with low holdings by those investors tend to 'outperform', analysts Robert Parkes, Daniel Grosvenor, Ruhell Amin and Eshan Raka explained in a research report sent to clients.

Taking that into account, income funds had received "significant" inflows over the past five years, but those stalled as the Fed moved towards raising rates.

However, as sovereign bond yields continued to fall 'high-yield' would return to favour, the analysts said.

By their reckoning, 10-year US Treasury yields would drop to 1.5% by the end of 2016, alongside falls on those for Bunds to 0.2% and yields on Gilts at 1.0%.

"Our holdings analysis suggests income funds are heavily overweight less risky yield, with large positions in telecoms and utilities. However, they have been warming up on energy in recent months."

To take note of as well, 'relative positioning' in consumer discretionary and industrial stocks had reached an "extreme" and could be at risk of a reversal, although within the latter funds had been avoiding the industries that were most exposed to China.

"Indeed, we have seen signs of selling in discretionary over the past few months," HSBC said.