Starting in May this year, on just a hint of the Federal Reserve possibly scaling back its bonds purchases, longer-term interest rates in the U.S. rose considerably.
If the recent interest rate trends continue, lessons from early 2013 performance divergences can be important for shaping equity allocations. Below, I will evaluate how the recent rise in Treasury yields has impacted various income-oriented investment strategies.
The charts below show the performance of various equity indexes over two periods of 2013: during the declining interest rates experienced through April 30 and then the rising yield period following April 30. This divide was chosen as the 10-year bond interest rate generally fell in yield up to that point and then began a steady rise that saw the 10-year bond increase from 1.63% to 2.81%.1
We show three categories of indexes throughout this piece:
• High-Yield Indexes: These indexes have a specific methodology focused on selecting high-dividend-yielding securities.
• Broad Indexes: These indexes focus on just providing general exposure to dividend-paying stocks in their respective size segments.
• Lower-Yield/Growth-Focused Indexes: These indexes typically display a lower yield and either select based on growth characteristics or have a weighting methodology that does not focus on dividends.
