In a recent blog on The Adviser Centre, Toogood and Gill Hutchison, head of investment research at the Adviser Centre said the rise in the high yield spread is the best barometer of corporate health, which is sharply deteriorating.
Toogood was also quick to point out that market reliance on central banks to do ‘whatever it takes’ is not particularly reassurance.
Toogood added QE is completely useless as a way to stimluate the real ecoonmy. Instead he proposed quasi government agencies such as the EIB spending on infrastructure projects, offering tax breaks to pension schemes to invest in infrastructure or mass affordable house-building programmes.
“For those inclined to buy high yield, please remember that previous bulls told you that in 2000 the problem was limited to telecoms, in 2008 it was just about financials and today it will just be an energy and mining story.” the pair continued: “Well, for the record, that is utter nonsense – the distress will infect everything else, period.” And, said Hutchison, distress in the energy sector easily spreads. “When a big sector blows up, it’s never isolated, she added.
For Hutchison, investors are better off buying hedge funds and absolute returns at the moment. “High yield is worth watching”, said Hutchinson. “High yield is always the canary in the coalmine but spreads have now moved out to interesting levels.”
Despite all the doom and gloom, however, Toogood’s outlook on the future ends on a more optimistic note. “With the developments within technology and population growth everything will be okay in the end,” said Toogood. “Just not yet.”
