SUMMARY
Cases of the delta variant of COVID-19 are rising just after we have reached a “peak” in global economic growth. We believe that neither of these major issues are crises, but both suggest that important shifts in portfolios are necessary.
Investment strategy
July 25, 2021
“Quality shift” to dividend growth stocks is on
July 25, 2021
- Over the past 18 months, both highly speculative growth stocks and deep value “reopening” names have led the market higher. Investors and markets were able to look past worst-case Covid scenarios and found companies whose equity valuations were just too cheap.
- During early cycle periods, it is common to see those names most punished during a downturn recover the most in percentage terms, leading to short-term underperformance of more “boring” dividend growers and traditional market leaders. This trade is largely over now.
- As we enter a mid-cycle period of somewhat slower, but sustainable growth, we are recommending a “Quality Shift” toward those equities that present more attractive valuations and can deliver both income and capital growth in a moderating expansionary period.
- As part of our “Quality Shift”, we are increasing our allocations to US large cap shares while remaining underweight in riskier and more highly leveraged US small and midcaps. Looking more deeply at relative performance, we believe US large caps have earned their stronger valuation compared with similar European shares.
- We see value in US and International “dividend growers”. We recently highlighted the opportunity presented by dividend growth equities. We also see a brighter future for Chinese equities after a recent period of underperformance due to regulatory uncertainty and fiscal tightening.
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