European portfolio

The high yield investment class has shown a remarkable comeback over the last six months. But the best instruments have been high yielding bonds. High yielding stocks have moved into the background, as some uncertainty exists over the outcome of tax reform in the US. Here, we investigate this asset class. Purchasing high yielding stocks is a defensive strategy and there are analytical techniques available that can enhance the power of a conservative portfolio. Our analysis is based on stocks with a high market cap in order to guarantee liquidity, high dividend yield, an excellent dividend coverage and low valuation. This analysis looks at almost 3500 European stocks. This selection alone might not be good enough to achieve excellent results. The secret is in an allocation that takes into account high price momentum and low volatility. The comparison shows that the portfolio of 12 high yielding stocks has outperformed over the last three years. Some might argue that this high yielding portfolio will not be able to perform at least in line with the market during a rebound. But take into account the fact that all of the stocks yield at least 4 per cent and that total return tends to increase over time. The average yield of these stocks is in fact more than 6 per cent. These conservative stocks are therefore a good diversifier away from low yielding government bonds.