OECD fears alternative assets ‘bubble’ as investors chase yield

Savers and self-managed super funds are becoming so desperate for yield they are helping generate a major “bubble” in alternative assets such as hedge and exchange traded funds, with many increasingly buying riskier bonds with fewer legal protections, according to one of the OECD’s top officials, reports the Australian Financial Review.

In what is effectively the first global investor’s handbook ever produced by the Paris-based organisation, the fund suggests equities still are likely to be a better long-term bet.

“I’d still rather have a good equity than a high-yield bond,” Adrian Blundell-Wignall, a special adviser to the secretary-general of the OECD and a former Reserve Bank of Australia official and BT investor, told The Australian Financial Review.

Research published by the OECD on Wednesday shows that the world’s top 10,000 companies are still reasonably close to their average valuations of the past decade or so.

In a groundbreaking piece of research, Dr Blundell-Wignall and his team compared the market capitalisation of the world’s biggest stocks to global gross domestic product – essentially replicating at a worldwide scale a measure of value made famous by billionaire US investor Warren Buffett.

On that measure, the OECD’s research shows that compared to high-yielding bonds, equities are roughly on par with where they stood prior to the 2008 global financial crisis, at just below 80 per cent of global GDP.

“Yes it’s true, [valuations] have got to a level where there’s been a stalling-out or correction in the past but it’s not in the extremes,” he said.

“You can surely find some good companies that can generate cash and aren’t in a bubble.”