There is a very famous law of motion attributed to Newton that says what goes up, must also come down, and vice versa. The rule applies to almost everything in life, including asset markets. There can be no denying the fact that the first half of 2022 has been challenging for investors across asset classes. Furthermore, with regards to inflation, interest rates and the possibility of recession, uncertainties plaguing the markets persist.
Laying down a roadmap for the second half of the year, Franklin Templeton's investment management teams discussed possible avenues for income-seeking investors. Some of the main points discussed have been mentioned below.
According to Ed Perkins, Franklin Templeton Investment Solutions, there is a silver lining to the volatility of the market. He said: "This volatile environment has also uncovered opportunities. One of these opportunities is in higher-quality fixed income securities, particularly those with longer duration or more exposure to interest-rate increases. We've seen historic sell-offs in bond prices, and the yields that investors can buy into now are significantly higher than they were just six to nine months ago."
Brian Giuliano at Brandywine Global feels that there is an opportunity at hand for investors if the keep safety in mind. He said: "Opportunities exist in the corporate credit space with companies that have pricing power given the inflationary backdrop. We think staying higher in credit quality is sensible given where we are in the cycle and economic headwinds."
"Bank loans-also known as leveraged, floating-rate or senior secured loans-tend to act as a good hedge against interest-rate risk," said Reema Agarwal at Franklin Templeton Fixed Income.
Michael Clarfeld at ClearBridge Dividend Strategy said: “Dividend growth is great in regular periods, but critical during inflationary periods. As inflation erodes the value of a dollar, growing dividends help to maintain purchasing power despite the increasing cost of living."
Matt Quinlan at Franklin Equity Group feels that there is a benefit to investing in quality options. He said: "In some ways, managing to income is part of managing volatility. Companies that have more predictable cash flows and more resilient dividends are likely to be less volatile. The key is to invest in high-quality, blue-chip companies, which allow for better dividend growth and stronger dividend resilience during difficult times."
"Infrastructure assets act as an inflation hedge due to the largely pre-programmed way-through regulation and contracts-infrastructure adjusts to inflationary environments," said Shane Hurst at ClearBridge Investments.
The sentiment was echoed by Clarion Partners, saying: "Historical precedence suggests that private real estate can effectively hedge inflation as a steady income-producing asset. The industrial and multifamily segments merit particular attention now."
Read more on the midyear Global Investment Outlook here.
Disclaimer
This document is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or an invitation to apply for shares of any Franklin Templeton fund. Nothing in this document should be construed as investment advice. Given the rapidly changing market environment, Franklin Templeton disclaims responsibility for updating this material.
All investments involve risk. The value of investments and any income received from them can go down as well as up, and you may get back less than you invested. Please consult a financial advisor for your investment needs.