Global equities rout prompts back-to-basics investing

Traders pissed off by a sell-off that has hit stocks and bonds are seeking refuge, increasing the appeal of investments offering reliable returns such as stocks that pay regular dividends.

A rout that saw global stocks enter a bear market and the so-called risk-free fall in Treasuries is forcing investors to get creative. They look for assets like high-dividend stocks, investment-grade bonds, and Chinese equities.

Investors are hoping the assets they buy will weather any fallout from a planned accelerated pace of interest rate hikes by the Federal Reserve to rein in inflation that is climbing at the fastest pace in four decades.

“We argue for portfolio adjustment to get the exposures that make sense in the current environment,” said Peter Garnry, head of equity strategy at Saxo Bank A/S. “These themes are commodities, defence, logistics, cybersecurity and mega caps.”

Meanwhile, BlackRock Inc.’s Karim Chedid, head of the investment strategy team and senior strategist for iShares EMEA, said he preferred stocks that can handle persistent inflation and tougher margins, like the healthcare and technology and generally defensive sectors with consumer price inelasticity.

Here is a list of other assets that are attracting the attention of investors:


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 FLPutnam Investment Management. “Clearly everything we learn in our CFA exams and in business schools about how you value companies and what kind of cash flow, that matters again. And that means you want to own businesses that generate free cash flow,” she said on Bloomberg Television on Tuesday.

Health care, insurance and a few tech and software stocks in the S&P index generate plenty of free cash flow, making them attractive to FLPutnam.


Dividend yield
Some investors are changing 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 continue to raise rates as consumers and businesses continue to have plenty of cash and access to still-cheap borrowing, she said. “That’s a very negative outlook for equities, so we would be sellers of any rally.”

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