2022 continues to give growth stocks – especially those in the technology sector – a blunt check.
The technology-centric Nasdaq index has fallen 24% year-to-date, more than doubling Dow’s 10% fall over the same period.
MoneyWise recently interviewed investing veteran Claudio Chisani – investment advisor and portfolio manager at BlueShore Financial – for his advice on how to navigate the current environment.
According to Chisani, the investment climate today is very different compared to years earlier, when equities enjoyed the benefits of meeting monetary policy and ample liquidity. And that requires a shift in strategies.
The tide has changed, he says. “If you look at an environment of high inflation and higher interest rates, an investor would benefit from being a bit more conservative.”
With that in mind, Chisani suggests several areas where investors can still find attractive opportunities.
Economy
Chisani says it would be wise to start focusing on conventional dividend payment strategies, such as looking at finance and insurance companies.
“They would be recipients of higher rates as long as the rates do not get out of control.”
Banks lend money at higher rates than they borrow, and lower the difference. As interest rates rise, the spread that banks earn widens.
But Chisani also warns investors to be aware of the default rate of financial institutions. If interest rates rise at a pace that exceeds expectations and puts pressure on consumers ‘mortgage repayments, it could hurt banks’ earnings.
These days, banks are generous dividend payers. Several major US institutions – including JPMorgan Chase, Bank of America, Morgan Stanley and Goldman Sachs – raised their payouts in 2021.
Investors can access the group through ETFs such as the Financial Select Sector SPDR Fund (XLF).
Chisani says it may also be worth looking at financial names north of the border. Manulife Financial (MFC), he points out, is a Canadian multinational insurance company offering a generous annual dividend of 5.5%.
Real estate investment associations
When it comes to fighting inflation, few assets work as well as real estate.
So it’s no surprise that in today’s environment – where consumer prices are rising at the fastest pace in 40 years – real estate is also on Chisani’s shortlist.
He suggests looking seriously at real estate investment funds, which are listed companies that own income-producing real estate.
REITs are good “cash flow mechanisms,” Chisani says.
REITs collect rent from the tenants and regularly pay dividends to shareholders. And as rents rise, high-quality REIT investors can look forward to reaping a steadily growing stream of dividends.
In addition, real estate typically rises in times of inflation, making the asset class a natural hedge against rising price levels.
Buying shares in a listed REIT is as easy as buying shares. And if you do not want to choose individual names, ETFs such as Vanguard Real Estate ETF (VNQ) or Schwab US REIT ETF (SCHH) provide convenient exposure to large baskets of REITs.
Raw materials
Finally, Chisani points to metals, minerals and energy as proven ways to defend against the threat of rising interest rates. But he also highlights that they have a different set of risks and rewards.
“When investing in metals and minerals, the risk associated with being in these sectors will be higher than conventional blue-chip dividend-paying stocks.”
The commodity market remains an unstable place. And for that reason, Chisani believes that ETFs represent the safest way for beginners to gain exposure to space.
“I would use exchange traded funds as diversified ways to participate in baskets and sectors of commodities,” says Chisani. “I think they could be quite lucrative down the road and to some extent a good hedge against inflation in a client’s investment portfolio.”
Chisani highlights the SPDR S&P Metals & Mining ETF (XME) as an attractive fighter against inflation. He also says that Barrick Gold (GOLD), which pays out regular dividends and withdrew its payout this year, could be worth a look for income investors.
For energy investors, Chisani proposes to take a look at Freehold Royalties (FRU), an Alberta-based oil and gas royalty company with assets in five provinces in Canada and eight states in the United States. Freehold currently offers a yield of 5.8%.
More from MoneyWise
This article is for information only and should not be construed as advice. It is delivered without warranty of any kind.
