Chart of the Week: Is It Time to Enjoy High Equity Risk Premiums?

Posted by Richard Skaggs, Senior Equity Strategist on Oct 7, 2015 11:00:00 AM

 By Richard Skaggs, Senior Equity Strategist  and Craig Burelle, Macro Strategies Research Analyst

Equity-Risk-Premiums-Loomis-Sayles

The global average equity risk premium (ERP)–is 6.5%.

Equity-Risk-Premium-DefinitonThis is good news for equity investors. With current low inflation across developed markets, the expected return from a portfolio of equities appears very attractive because earnings retention plus dividend yield is far above the sovereign bond yields, and also far above inflation in most markets. 

Our bottom line is that while equities have been more volatile recently, I believe the long term drivers of equity returns remain intact and can provide a meaningful premium relative to the low rates of inflation experienced in most countries today.

 If stocks were valued at much higher levels, and/or if bond yields were much higher than they currently are, the equity risk premium would be considerably lower than it is today. 

 

 

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This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. This information is subject to change at any time without notice.

Topics: Equity Research

Loomis Sayles analysts are career professionals who offer deep knowledge and experience in a diversity of global asset classes and market sectors. These dedicated experts provide the insight essential to supporting our portfolio management teams across a wide range of investment strategies.


 

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