It is becoming even more challenging for investors to determine which part of the financial market will benefit the most from the search for yield theme. In our view, ECB policy pushes investors even more to risky assets such as equities and real estate.

## Yield gap between bonds and equities is significant


## Where is the yield?

Many parts of fixed income markets trade close to record-low yield levels and provide very limited upside for investors going forward. Especially if yield levels are corrected for (expected) inflation it will be more difficult than ever to deliver positive real returns in fixed income space going forward. Therefore, the income generating capacity of other asset classes seems likely to get more explored.

As can be seen in the graph, the earnings yield that can be extracted from global equity exposure remains attractive and the “real yield” gap with bonds is still remarkably large. The global earnings ratio is currently around 16. The earnings yield is defined as the inverse of this ratio (1/16 or approximately 6%).

## Income-focussed investors might become less single-minded

The “real yield” gap with bonds suggests that “income“ focussed investor flows might well become less single-minded and also move more persistently into real estate and equities. Of course, we realise that there will always be investors who have their reasons – for example related to their risk profile or their investment objectives – to stick to the various fixed income markets. From an asset allocation perspective, equities and real estate remain our most preferred categories. This is not only driven by a higher share of yield-searching flows that support them, but also our ongoing conviction that global growth, earnings and employment growth will strengthen during the coming quarters.