Guosen: How to make absolute return investments in a low interest rate environment?

Guosen released a research report stating that the formation of a global low interest rate environment is mainly due to structural changes in the economy and the interactive effects of policy markets. The bank proposed insights on absolute return funds under low interest rates, including diversifying bond varieties, extending duration, and sinking moderately in credit to increase returns. They also highlighted the importance of focusing on equity assets and alternative asset allocation opportunities to promote the reshaping and improvement of operational structures. By constructing multiple sources of income through "high dividends + credit premium + alternative income", and expanding into alternative assets such as new energy infrastructure projects, the bank aims to mitigate reinvestment risks through "super-long duration assets + rolling allocations." Furthermore, although dividend assets have significant return advantages compared to government bonds, their annualized volatility is higher, making them unable to completely replace bonds in terms of risk-return features. It is important to closely monitor the impact of AI technological revolution on productivity in the future, as this could be a key variable in changing the long-term interest rate trend. Key points are as follows: Formation of a global low interest rate environment: mainly due to structural changes in the economy and the interactive effects of policy markets. After the 2008 financial crisis, global risk aversion led to a surge in savings rates to historical highs, while capital output ratios continued to decline, creating a savings-investment gap. Aging populations and weak total factor productivity growth led to a slowdown in potential economic growth rate. Interest rates, as the anchor of funding costs, passively reflect the decline in real economic returns, resulting in a "low interest rate-low growth" cycle. As a result, fixed income asset yields continue to decline, exacerbating reinvestment risks, and traditional safe assets' attractiveness diminishes in terms of coupons. On the liabilities side, institutions like insurance companies face risks due to lagging adjustments in liability costs, prompting them to reduce rigid payout products. The new classical theory states that the potential economic growth rate determines the long-term interest rate trend, a point reiterated by the experiences of the US, Japan, and Europe over the past 40 years, where declining interest rates have been accompanied by typical features of aging populations and slowing productivity growth. Japan and South Korea: Japan entered a long period of low interest rates after the bursting of the bubble in the 1990s, implementing a zero interest rate policy in 1999 and further advancing negative interest rate policies in 2016, with 10-year government bond yields remaining below 0.2% in the long term. South Korea maintained a historical low benchmark rate of 1.25-1.5% from 2015 to 2022, dropping to a record low of 0.5% during the 2020 pandemic. In Japan, in a low interest rate environment, the core strategy adopted is "increased equity allocation + super-long duration," where the GPIF increased equity allocation to over 80% and life insurance companies significantly increased their holding of super-long term government bonds to 40-50%. South Korea's NPF demonstrates a "technology-oriented + concentrated investment" characteristic, with equity assets rising from 23% to 48%, focusing on leading technology companies like Samsung Electronics, with the top ten holdings accounting for 42% of equity assets. Europe: The Eurozone implemented negative interest rate policies in 2014, with German 10-year government bond yields falling below zero for the first time in 2019 to -0.19%, while Norway, despite maintaining positive rates, has long been below 1%, dropping to 0% in 2020, prompting European institutions to adopt a "long duration + alternative expansion" strategy. Norway's GPFG increased its corporate bond allocation to 24.9%, while Germany's Allianz Insurance lengthened duration and implemented a "barbell strategy" - allocating high-grade bonds to long duration and low-grade bonds to short duration. France's Axa Group achieved income resilience through a "three-pillar" strategy, with alternative investments accounting for 25-30%, delivering stable annual returns of 6-8%. Italy's Generali Insurance focused on investing in BBB-rated bonds and locking in long-term returns through infrastructure investments. North America: The Federal Reserve maintained near-zero interest rates of 0-0.25% for 7 years after 2008, dropping to this range again during the 2020 pandemic. Canada's policy rates were below 1% from 2010 to 2017, dropping to 0.25% in 2020. The US life insurance industry formed a configuration model of "equity dominance + credit sinking", with over 70% allocated to separate account equities, and increasing returns by holding corporate bonds and extending duration. Canada's CPP pension fund adopted a strategy of "private equity + public market balance", with private equity and public equity allocations trending towards balance, focusing on technology, consumer, and finance industries. Insights on absolute return funds under low interest rates: Diversify bond varieties, extend duration, and sink moderately in credit to increase returns, focus on equity assets and alternative asset allocation opportunities to promote reshaping and improvement of operational structures. Build multiple sources of income through "high dividends + credit premiums + alternative income", expand into alternative assets such as new energy infrastructure projects; mitigate reinvestment risks through "super-long duration assets + rolling allocations". Although dividend assets have significant return advantages compared to government bonds, their annualized volatility is higher, making them unable to completely replace bonds in terms of risk-return features. It is important to closely monitor the impact of AI technological revolution on productivity in the future, as this could be a key variable in changing the long-term interest rate trend. Risk warning: The products listed in this article are for review purposes only and should not be used as investment recommendations; uncertainties in the pace and magnitude of overseas monetary policies; risks of local geopolitical conflicts overseas.