True diversification requires looking for independent return streams. You normally cannot rely on the weather, but in investments that lack of reliability is an interesting feature.
Having worked as an equity strategist for well over a decade, I’ve lost count of the number of times I’ve had the debate on ‘what happens to equities when bond yields go up?’. And for most of that time bond yields were in the ice age and falling! To cut down on some future deja-vu, here's my Top 7 list of things to consider about equities when bond yields go up.
Remember the EU referendum? The City thought the British public would see the economic benefits of EU membership and not wish to loosen ties with our closest trading partners. Turns out the City was wrong and had misread the mood of the nation. The current discussion around nationalisation has some worrying similarities, so is the City making the same mistake again?
The US yield curve has consistently flattened since the Federal Reserve began tightening monetary policy several years ago. History strongly suggests that this is an entirely normal market reaction to a rate hiking cycle. If short-term interest rates continue to rise at the pace we expect, we could well be looking at an inverted curve by the middle of 2019.