Michael Sonnenfeldt doesn't mince words: "There is no safety in safety," the founder of Tiger 21, a network of "ultra-high-net-worth" investors, said. "All of the historical places you could get safe income from—dividend-paying stocks, bonds—they've all been bid up because of quantitative easing to the point where it's just trash."
Assets that include Treasury notes, high-quality dividend stocks, and low-volatility mutual funds have all seen spooked investors rush into their supposedly safe embrace. Sonnenfeldt and others argue that has transformed them.
"When you overpay for what used to be safe assets," he said, "they now have a lot of risk in them."
Whether they're "trash" is debatable. But the concern that the prices of these assets may now be propped up more by fear than by economic fundamentals is legitimate.
Here's a look at how some "safe" assets that investors have raced into over the past year or so are holding up. For a backdrop, take a look at how the S&P 500 has performed since last August's deep dive.
August's turmoil was followed by more market mayhem in early 2016, and then Brexit struck. From August 24, 2015, when the Dow plunged some 1,000 points before closing with a 588-point loss, the blue-chip index is up 16.9 percent and the S&P 14.6 percent. Even if you look at the indexes from before the big drop—from, say, July 31, 2015, to July 28 of this year—the Dow is up 4.3 percent and the S&P 3.4 percent.
Within the S&P 500, low interest rates have made dividend stocks hotly sought-after for income. Vanguard's Dividend Growth Fund (VDIGX) has almost doubled in size in three years, to $30.6 billion, $3 billion of which flowed in over the past six months. To protect the fund's long-term returns, Vanguard announced on Aug. 27 it was closing VDIGX to new investors.
The fund has beaten 83 percent of its peers in 2016 and 86 percent over five years, according to data compiled by Bloomberg. It tracks the overall price performance of the S&P 500 pretty closely. But it has a total return for the past 12 months of 7.2 percent, compared with the S&P's 5.4 percent.
The top three holdings in the dividend fund, making up 9.4 percent of assets, are Microsoft Corp. (MSFT), Costco Wholesale Corp. (COST), and United Parcel Service Inc. (UPS). The trio has had a good 12-month run. Microsoft has gained 20.4 percent, Costco is up 14.5 percent, and UPS is up 6.2 percent.1
