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What's The "Best" Way To Make A 10% Return?

Aside from the "sure thing" of buying the Alibaba IPO, achieving a 10% yield return in the new normal world requires leverage and excess risk-taking. To compare the risk/reward of various assets, Citi accounts for haircuts and leverage costs of the typical investor and finds an investors needs a 1.9x leverage in the S&P 500, 8.1x leverage in Treasuries, and 2.3x leverage in high-yield to achieve (based on historical norms) the required return. However, after accounting for downside risks, high-yield cash and leveraged loans both top the S&P 500 as the best way to meet a 10& bogey return.

 

To achieve a 10% yield bogey, you need leverage...

 

Which means risk... (worst case)

 

Which leaves us with the best way to achieve a 10% bogey (based on risk/reward)...

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For Citi, corporate high yield is compelling, stocks not so much, and Treasuries abhorrent...

 

Source: Citi