• High-Dividend Yield
• Great for income-oriented investors, especially in this low-interest-rate environment. Beware of stretched balance sheets, high payout ratios and industries that may not bounce back for a while. Dividends in these areas are at higher risk of being cut.
Tip 3 – Think Globally
Don’t go to sleep on investments in emerging markets. After 10+ years of going nowhere, and now after this significant pullback, emerging-market investments are some of the cheapest in the world. On multiple valuation indicators, emerging markets are MUCH cheaper than their U.S. counterpart and offer better demographics, more economic development and more rapidly rising GDP per capita. Looking out five to 10 years or more, emerging-market investments should have a place in a diversified investor’s portfolio.
Tip 4 – This Time *Is* Different
It’s both appropriate and wise to rethink our long-held beliefs about fixed-income investing in today’s environment. Consider revising the assumptions you’ve made about asset allocation and the investment style rules you’ve grown so comfortable with. Does it still make sense to have 40% to 70% of your investments in government bonds when global yields are in the range of zero to 2%? We’ve all been told to eschew active management for a cheaper and simpler passive approach. Does that still make sense in this environment?
For fixed-income investors, we think it’s time to consider actively managed strategies to take advantage of the distress we’re seeing and are about to see in municipal bonds, corporate bonds, distressed debt, preferred stocks and emerging markets. It takes skill and valuation discipline to navigate and add value in these highly specialized areas. You will ultimately benefit from investing in these areas going forward to generate reasonable fixed-income returns, but you’ll need long-tenured expertise to do so.
We believe clients should hold well-diversified, risk-managed portfolios guided by a long-term, valuations-based framework. Such portfolios cannot outperform in every environment, but they can outperform over time by protecting against unexpected drawdowns caused by unforeseen events like the Covid-19 pandemic.
Mark Petrie, CFA, CFP, is partner and director of wealth management at Aspiriant.