This investment veteran says high inflation and a tight Fed call for a change in strategy. It likes 3 specific areas of protection

‘The tide has changed’: This investment veteran says high inflation and a tight Fed call for a change in strategy. It likes 3 specific areas of protection

2022 continues to give growth stocks – especially those in the tech sector – a brutal reality check.

The tech-focused Nasdaq index is down 24% year-to-date, more than double the Dow Jones’ 10% decline over the same period.

MoneyWise recently interviewed investment 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 from that of years past, when equities enjoyed the benefits of accommodative monetary policy and ample liquidity. And that calls for a change in strategy.

“The tide has changed,” he says. “In an environment of high inflation and higher interest rates, an investor would do well to be a little more conservative.”

With that in mind, Chisani suggests several areas where investors may still find attractive opportunities.

finance

Chisani says it would be wise to start focusing on conventional dividend-paying strategies, like looking at financial companies and insurance companies.

“These would benefit from higher rates as long as rates don’t spin out of control.”

Banks lend money at higher rates than they borrow, pocketing the difference. When interest rates rise, the spread earned by banks widens.

But Chisani also warns investors to pay attention to the default rate of financial institutions. If rates rise at a pace that exceeds expectations and puts pressure on consumer mortgage payments, it could hurt bank profits.

Today’s banks are generous dividend payers. Several major US institutions – including JPMorgan Chase, Bank of America, Morgan Stanley and Goldman Sachs – have increased their payouts in 2021.

Investors can access the group through ETFs like the Financial Select Sector SPDR Fund (XLF).

Chisani says it might also be useful to look at financial names north of the border. Manulife Financial (MFC), he points out, is a Canadian multinational insurance company that offers a generous annual dividend yield of 5.5%.

Real estate investment trusts

When it comes to fighting inflation, few assets perform as well as real estate.

So it’s no surprise that in the current environment – ​​where consumer prices are rising at their fastest pace in 40 years – real estate is also on Chisani’s shortlist.

He suggests taking a serious look at real estate investment trusts, which are publicly traded companies that own income-producing real estate.

REITs are great “cash flow mechanisms,” says Chisani.

REITs collect rent from tenants and pay regular dividends to shareholders. And because rents are rising, investors in high-quality REITs can expect to receive an ever-increasing stream of dividends.

Additionally, real estate typically appreciates during times of inflation, making the asset class a natural hedge against soaring prices.

Buying shares of a publicly traded REIT is as easy as buying shares. And if you don’t want to pick individual names, ETFs like the Vanguard Real Estate ETF (VNQ) or the Schwab US REIT ETF (SCHH) offer convenient exposure to large baskets of REITs.

Goods

Finally, Chisani points to metals, minerals and energy as proven ways to defend against the threat of rising interest rates. But it also highlights the fact that they have a different set of risks and rewards.

“When you invest in metals and minerals, the risk associated with belonging to these sectors will be higher than that of conventional blue-chip dividend-paying stocks.”

The commodity market continues to be a volatile market. And for that reason, Chisani believes ETFs are the safest way for beginners to gain exposure to the space.

“I would use exchange-traded funds as a diversified way to participate in commodity baskets and sectors,” Chisani says. “I think these could be quite lucrative down the road and to some extent a great inflation hedge in a client’s investment portfolio.”

Chisani singles out the SPDR S&P Metals & Mining ETF (XME) as an attractive inflation fighter. He also says Barrick Gold (GOLD), which pays regular dividends and has increased its payout this year, could be worth a look for income investors.

For energy investors, Chisani suggests taking 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 dividend yield of 5.8%.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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