Investment Opportunities in a Challenging Environment

After another high inflation print last week and the Fed raising rates by 0.75% for the first time since 1994, pressure on all markets has increased this month.  Market duress can bring opportunity, as Warren Buffet says, “be fearful when others are greedy, and greedy when others are fearful.”  Rising rates and falling market prices have begun to unlock attractive long term investment prospects.  We don’t know how deep or how long this challenging environment may last. What we do know is greater expected returns per unit of risk are now being offered in the marketplace as a result of this volatility.

Here are four ideas we currently find attractive:

·         High income producing assets – 10 Year Treasury yields are near highest levels since the Great Financial Crisis at same time risk assets are depressed in prices.  This creates the opportunity to earn attractive yields with less need to “stretch” for yield in riskier parts of capital markets.

 ·         Private real estate focused on multifamily and industrial spaces.  Hard assets such as real estate can provide a great store of value during inflationary times.  Real estate cash flows can hedge inflation through rent increases. 

 ·         Dividend growing businesses – still one of our favorite places to invest capital, we like high quality dividend growing companies diversified across sectors and geographies.  Growing dividends provide (1) offset to inflation (2) quality bias to profitable companies and (3) demands management steward a company’s capital effectively.

 ·         Select high quality growth companies that have been discounted below Pre-Covid-19 pandemic valuations.  Select companies are generating more cash flow, have built more resilient businesses, and are trading at cheaper valuations and share prices today than before February 2020.

Please contact us today if you would like to discuss how these opportunities can fit into your portfolio.

Andy Michael, CFA
Portfolio Manager