Yield Stocks Are the Way to Go for This Australian Hedge Fund

(Bloomberg) -- Equities that offer attractive yields are the last remaining place investors can get returns in a world of zero interest rates, according to Kardinia Capital.

The Sydney-based absolute return manager of one of Australia’s longest-running long/short funds is increasing exposure to yield-producing stocks and casting even wider for shares not normally considered yield plays, co-founder and portfolio manager Kristiaan Rehder said.

“We are not just looking at companies that offer an attractive yield, we are also looking for companies that have a sustainable dividend yield,” he said in an interview. “They are both important.”

Central banks and governments worldwide have been taking unprecedented action for months to pump money into a global economy hampered by the effects of Covid-19. The Federal Reserve’s measures have included buying more corporate debt, which is pushing yields lower, so “it’s quite devoid of options for yield-seeking investors,” he said. Meanwhile, fiscal and monetary stimulus will continue to support equity markets, Rehder said.

The fund has exposure to low-growth defensive stocks traditionally targeted by yield investors such as property developer Charter Hall Group, and infrastructure developer and operator Atlas Arteria Ltd., he said. But stocks like electronic goods retailer JB Hi-Fi Ltd. and Fortescue Metals Group Ltd. -- both of which it holds -- are also attractive because they offer heightened dividends with relative certainty of payouts due to resilient and strong earnings, he said.

The Bennelong Kardinia Absolute Return Fund has an annualized return of 8.36% since its inception in May 2006, according to the fund’s monthly performance report as of June 30. That compares with 5.8% gain for the S&P/ASX 300 Accumulation Index, according to data compiled by Bloomberg. Kardinia has run the strategy under the Bennelong Funds Management umbrella since 2011.

The A$130 million ($93 million) fund fell 2.15% in June, with the portfolio lagging the S&P/ASX 300 Accumulation Index, which was up 2.43%, according to the performance report.

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