By Walt Czaicki, Context | The AB Blog on Investing From Business Insider

US stocks with high dividend yields are looking very risky these days. Investors with too much exposure to sectors such as utilities and telecom may be in for a shock if interest rates eventually begin to rise.

In today’s low-interest-rate environment, many investors are desperately seeking yield. In equities, flows to high-dividend sectors—such as utilities, telecom and consumer staples—have stretched valuations and inflated those sectors’ weightings in indices such as the S&P 500 Index. We believe that crowded trades like these are very risky, and there are already signs that they are starting to unwind.

Yield chasers should also think about interest-rate risk. Our research shows that the correlations of returns in these yield-centric sectors with the 10-year US Treasury rate have risen substantially over time (Display). Since the Fed’s “taper tantrum” in May 2013, returns for utilities, telecom, consumer staples and REITs are much more tightly synchronized with the Treasury rate than over the last five- and 10-year periods.

Several Fed officials recently signaled that a rate hike is likely “relatively soon,” according to minutes released this week from the US central bank’s September policy meeting. If rates begin to rise, investors who are overweight high-yielding equity sectors in a balanced portfolio containing fixed income might not be as diversified as they think.

For more on this story go to: http://www.businessinsider.com/heres-why-you-shouldnt-trust-high-dividend-yield-stocks-2016-10?utm_source=feedburner&amp%3Butm_medium=referral&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29

Related story:

A losing bet on hedge funds cost a huge New York pension $3.8 billion

By Suzanne Barlyn and Svea Herbst-Bayliss, Reuters From Business Insider

(Reuters) – Bets on expensive but poorly performing hedge funds have cost pensioners in New York $3.8 billion in the last eight years, according to a report published by the state’s financial regulator on Monday.

“Hedge fund managers continue to reap hundreds of millions of dollars in fees, regardless of their performance, which is a rip-off at the expense of pensioners,” Maria Vullo, superintendent of the New York State Department of Financial Services, said in a statement.

The New York State Common Retirement Fund, which oversees $178 billion in assets and is the third-largest U.S. pension fund, paid $1 billion in fees to hedge fund managers over the last eight years, the regulator said in the report. The funds underperformed to the tune of $2.8 billion, said the regulator, which oversees banks and insurance companies in the state.

Hedgefunds, according to the 20-page report, are the “worst of the six asset allocation classes” in which the pension fund invests. Many hedge funds are now making the same types of bets, and the state’s Common Retirement Fund arrived late to an asset class where a small number of investors made eye-popping returns years ago, the report said.

The regulator is considering regulatory reforms for the pension fund’s hedge fund investments as well as reforms to address a lack of transparency in private equity investments.

“Given the $3.8 billion hole the comptroller’s hedge fund gamble already has dug for the state pension system, taking away the checkbook may be the only way to safeguard the pensions of state employees, and the pocketbooks of taxpayers on the hook for system deficits,” Vullo said.

The highly critical report comes at a time pension funds from California to Rhode Island have decided to pull all or at least some of their money out of hedge funds because of lackluster returns and high fees.

Hedgefunds that the New York State Common Retirement Fund has invested in lost nearly 5 percent in fiscal 2016, according to the report. The state made investments with some of the industry’s most highly respected hedge funds, including Nelson Peltz’ Trian Fund Management, John Paulson’s Paulson & Co, Daniel Och’s OZ Advisors and Ray Dalio’s Bridgewater Associates.

The regulator, in the report, blames New York State Comptroller Thomas DiNapoli, the sole trustee overseeing the state pension fund, for “letting outside managers rake in millions of dollars in fees regardless of hedge fund performance, and tolerating large private equity fees and expenses without obtaining necessary transparency.”

DiNapoli’s spokeswoman, Jennifer Freeman, responded in a statement that “It’s disappointing and shocking that a regulator would issue such an uninformed and unprofessional report.” The report was emailed to the comptroller’s office five minutes before it was provided to the press, Freeman said.

The comptroller’s office has taken “aggressive steps” to reduce hedge fund investments and limit fees, Freeman said. Those measures include reducing the pension fund’s hedge fund allocation to 2 percent of assets from 3 percent and not putting money into a hedge fund for more than a year, Freeman said.

The Common Retirement Fund is the investment arm of the New York State and Local Employees’ Retirement System and the New York State and Local Police and Fire Retirement System.

New York City’s largest public pension fund, the New York City Employees Retirement System, is exiting all hedge fund investments in the latest sign that the $4 trillion public pension sector is losing patience with these often secretive portfolios at a time of poor performance and high fees.

The Department of Financial Services report is the first in a series to be released about the investment activities of pension systems it has authority to audit. The department also has audit authority over five other pension systems, including the New York State Teachers Retirement System and the New York City Employees Retirement System.

(Editing by Nick Zieminski and Steve Orlofsky)

Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

IMAGE: statigr.am/sandi_sandra

For more on this story go to: http://www.businessinsider.com/hedge-funds-cost-new-york-pension-38-billion-in-the-past-8-years-2016-10?utm_source=feedburner&amp%3Butm_medium=referral&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29