Traders unnerved by a selloff that hit stocks and bonds alike are looking for refuge, increasing the appeal of investments offering reliable returns such as shares that pay steady dividends.
A rout that’s seen global stocks enter a bear market and so-called risk-free Treasuries slump is forcing investors to get creative. They are looking at assets like high-dividend shares, investment-grade bonds and Chinese stocks.
Investors are hoping the assets they buy will withstand any fallout from an expected accelerated pace of interest-rate hikes by the Federal Reserve to tame inflation that’s climbing at the fastest pace in four decades.
“We are arguing for adjusting the portfolio to get those exposures that make sense in the current environment,” said Peter Garnry, head of equity strategy at Saxo Bank A/S. “These themes are commodities, defense, logistics, cyber security and mega caps.”
Meanwhile, BlackRock Inc.’s Karim Chedid, head of the investment strategy team and senior strategist for iShares EMEA, said they prefer stocks that can navigate persistent inflation and more difficult margins, like healthcare and tech and generally defensive sectors with consumer price inelasticity.
Here’s a list of other assets that are attracting investors’ attention:
Free-Cash Flow Stocks
The era of easy money with very low or negative real rates is clearly over, according to Ellen Hazen, chief market strategist and portfolio manager at F.L.Putnam Investment Management. “It’s clear all that stuff we learn during our CFA exams and in business schools about how you value companies and this kind of cash flow, that matters again. And what that means is you want to own companies that are generating free cash flow,” she said on Bloomberg Television on Tuesday.
Health-care, insurance, and a few technology and software stocks in the S&P index generate a lot of free cash flow, which make them look appealing for F.L.Putnam.
Dividend-Yield
Some investors are tweaking their dividend strategies. Marija Veitmane, senior strategist at State Street Global Markets, said high-dividend yielding stocks are the best place to hide, along with commodities and large caps.
Central banks will keep raising rates as consumers and corporates continue to have a lot of cash and access to still-cheap borrowing, she said. “This is a very negative outlook for stocks, so we would be sellers of any rally.”