This veteran investor says hot inflation and a tight Fed call for a change in strategy. He likes 3 specific areas for protection

‘The tide has turned’: This veteran investor says hot inflation and a tight Fed call for a change in strategy. He likes 3 specific areas for protection

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

The technology-centric Nasdaq index is down 24% year-to-date, more than double the Dow’s 10% drop over the same period.

MoneyWise recently interviewed investment veteran Claudio Chisani – investment advisor and portfolio manager at BlueShore Financial – for his advice on navigating today’s environment.

According to Chisani, the investment climate today is very different compared to years in the past, where equities received the benefits of accommodative monetary policy and abundant liquidity. And that requires a change in strategies.

“The tide has turned,” he says. “Looking at an environment of high inflation and higher interest rates, an investor would be well served if they were 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 payout strategies, such as looking at financial and insurance companies.

“These would be beneficiaries of higher rates, as long as the rates don’t get out of control.”

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

But Chisani also warns investors to keep an eye on the default rate of financial institutions. If rates are rising at a rate beyond expectations and putting pressure on consumers’ mortgage payments, it could hurt banks’ profits.

Nowadays, 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 gain access to the group through ETFs such as the Financial Select Sector SPDR Fund (XLF).

Chisani says it might also be worth looking at financial names north of the border. Manulife Financial (MFC), it points out, is a Canadian multinational insurer that offers a generous 5.5% annual dividend yield.

real estate investment funds

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 the fastest pace in 40 years — real estate is also on Chisani’s shortlist.

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

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

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

In addition, real estate typically appreciates in times of inflation, making the asset class a natural hedge against rising price levels.

Buying shares in 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 investing in metals and minerals, the risk associated with being in these sectors will be greater than conventional dividend-paying stocks.”

The commodity market remains a volatile place. And for that reason, Chisani believes that ETFs represent the safest way for newbies to gain exposure to the space.

“I would use exchange-traded funds as diversified ways to participate in commodity baskets and sectors,” says Chisani. “I think this could be quite profitable in the future and, to a certain extent, a great hedge against inflation in a client’s investment portfolio.”

Chisani highlights the SPDR S&P Metals & Mining (XME) ETF as an attractive inflation fighter. He also says that Barrick Gold (GOLD), which pays regular dividends and has increased its payout this year, may be worth seeking out 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 Canadian provinces and eight US states. Currently, Freehold 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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