This is a trend that has been in place for 9-12 months with a huge increase in demand for (perceived) high quality stocks generating a reliable dividend. Telstra moved  first along with bank stocks and some property stocks. As these shares become pricey, investors start looking for other sources of reliable yield, which may mean lesser stocks which appear safe but in fact bring with them increased risk of capital loss.

Demand for yield generating property has also increased across a range of asset classes. We have seen first hand increased investor demand for residential housing, especially NRAS (National Rental Affordability Scheme) qualified units and townhouses. Commercial and industrial properties are also on the radar, and international investors have been snapping up large Australian infrastructure assets and office towers.

History tells you this is the time to move into these assets, and history may well repeat. But there are some substantial differences between what is happening now, and what has happened previously.

The global economic system is undergoing profound structural change with many economies printing huge quantities of their domestic currencies, mostly in an attempt to increase credit, asset prices, and liquidity whilst also devaluing their currencies to support exports and reduce their debt burden. Japan, the USA, Europe, the UK, Korea, China and just about every major international player is looking at the level of their currency and trying to find ways to move it lower.

How this plays out between those countries I have no idea, although we do expect the Japanese to succeed in devaluing the Yen as long as they buy US Treasuries. How it plays out in Australia is also difficult, but the logic to me is pretty compelling. Everyone else (that matters) is printing money. And in Australia we are not. Yet.
And I don't expect we will print much money whilst we still have interest rate levers to pull lower. So if we assume the RBA reduces interest rates lower than current expectations, then the quest for yield will become even more pronounced.

Now lets also assume banks in Australia actually start to compete. No, I'm not joking. They might actually compete in the near term as wholesale funding markets have opened up and credit growth in this country is non-existent. If this happens, then real interest rates may fall even lower. I have met some smart people in the UK and USA recently who think we could have zero interest rates in Australia in the short to medium term. Clearly they are not positive on our economy, but the answer probably lies somewhere in between.

Now let's assume all other countries keep their interest rates at zero for an extended period of time, and their investors start looking around the world for more opportunities as their homegrown ones have dried up. Where can I find an asset backed economy, with strong Rule of Law, with exposure to Asia and yields higher than where I am? I am telling you, Australia hasn't been on the radar too much in the last couple of hundred years, but it is going to be soon. AAA rated 10 year government bonds paying 3% looks like a good deal to these investors. So does owning Australian income-producing assets.

This is very important in the context of investors chasing yield. Rather than "chasing" isn't it better to get "ahead" and let everyone chase you? As an investor, I prefer
to be at the front of the curve.

So if you take my assumptions that interest rates will be substantially lower than they are today, that investors domestically and globally will be chasing Australian income producing assets, and that this will persist for some time, then where do you want to be? Manufacturing is in deep trouble in Australia with a high dollar, wages, electricity, rent, and Government charges. US manufacturing is on the rebound with globalisation in reverse and jobs returning home. Add in the Japanese, Koreans, Germans and Chinese all competing, and I think it's a very tough industry. So that means lots of industrial property is out. Too much counterparty risk and demand for space will fall.

Retail is in trouble as well, with the Internet stealing sales and the industry suffering from high wages, rent, electricity and Government charges. The high dollar also means their Australian based overheads are much higher than offshore retailers, so buyers are heading online. Reportedly about 2% of retail trade is online, compared
to the US where it is 20%. It may not go to 20, but it sure will be more than 2. So B grade shopping malls and other commercial property is out. Too much counterparty
risk and rents will fall or stagnate as tenants go broke with nobody to replace them.

Dividend paying equities will be a place to play if you can find them before everyone else and ride the wave until they are too expensive. I don't think corporate earnings
will improve much this year so finding them is difficult but can be done.

By definition, it is not easy to find strong cash paying opportunities with low risk of capital loss. Stock markets are crawled over by thousands of analysts and traders,
so there may be a few gems but you've got to be pretty smart. And by moving out of cash deposits backed by large blue chip banks, and in some cases Government
guarantees (both explicit and implicit), investors are moving further up the risk curve. It is therefore important investors are rewarded for taking additional risk
with a higher yield and, in some cases, the opportunity for capital appreciation.

Sadly, many people will seek out yield and not understand the underlying assets, or the assets will deteriorate in quality due to new events, trends or mistakes.
There are a couple of logical trends to follow, which we think have an appropriate risk reward relationship. Lets start with the big picture and follow the thread
from there.

We think you will want to be investing in things that people need, rather than what they want. I don't think this will be a consumer lead recovery. So that means housing, infrastructure, food, water, energy, resources and faming land. Assets that are "real", that are tangible, and produce something. These assets will become more
valuable over time as lower interest rates helps drive their prices higher, and the yields they generate become more difficult to replicate in other industries.

Of these asset classes, some are easier to participate in than others. Firstly, lets talk about housing. Now, I am not a great fan of owning real estate, but when you want to park $ in an asset, generate a reliable yield, and hopefully generate some capital growth, then housing is a good place to be. This holds true for the lower end of the housing market, which in Australia I would loosely define as under $400,000. Rental growth is happening and yields are currently 5-6% on good properties in growth areas.

I think Governments are going to be forced to provide assistance to this industry to get construction happening and create jobs to replace those lost in other industries. Money will flow into this asset class in the next couple of years, so this might be the time to buy and hold. Infrastructure is really interesting. I expect the big move will be into new infrastructure projects, which in turn will be funded by selling off old ones. This will also create jobs, is genuine investment in Australia's productivity, and is politically palatable if spun right. The challenge will be getting access to the opportunities, but if you can then its a good place to play. Asset backed, monopolistic,
income generating. I like it!

Debt is generally still hard to access, which creates a window of opportunity for investors to provide mezzanine finance into the right industries. In public markets
is has already happened with hybrid notes, where demand has been phenomenal. This will cascade into other sectors such as mezzanine into property construction,
lower gfsde debt into listed snd unlisted companies, and convertible notes. As a general rule if structures appropriately the investor will get a higher yield with better
capital protection. At this stage of the business cycle risk / reward should be in investors favour. The reality is the world is structurally vulnerable, delveraging has just begun, and volatility will return.

Clever positioning and taking the time to think about where the yield is coming from will truly pay dividends over the long term.