A strategist with JPMorgan’s $1.7 trillion asset management business says trade and politics will keep investors in ‘purgatory’ for more than a year — but thinks these 4 strategies can help them break outOctober 27, 2019
- Samantha Azzarello — a global market strategist for the $1.7 trillion JPMorgan Asset Management — says the trade, political, and economic tensions that have been buffeting stocks will endure until after the 2020 elections.
- So she urges investors not to take big risks until the situation clears up.
- A key part of her approach is seeking more income, and Azzarello told Business Insider about four ways investors could get a “stable, diverse income stream.”
- While conditions haven’t changed much in recent months, Azzarello says investors feel more lost than ever because the range of outcomes for the trade war, US politics, and the global economy seems to be getting wider.
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Some investors may have endured all the uncertainty they can stand. But Samantha Azzarello, the global market strategist for JPMorgan Asset Management, says it will last a lot longer.
She says this stretch of back-and-forth trade and political headlines and economic news will endure through the 2020 US elections at least. If anything, she argues that a wider range of outcomes look possible, both good and bad — which only adds to the stress and to market volatility.
“This ‘in the middle’ (situation) feels like purgatory for investors,” she told Business Insider in an exclusive interview.
Since Azzarello thinks uncertainty will continue to weigh on global trade, spending, and business confidence into next year and possibly beyond, she says the best thing investors can do is be patient and not overweight any part of their portfolio.
“We’re not making big bets, we’re not doing anything cute, we’re not making big calls,” Azzarello said. “It doesn’t feel like that kind of behavior is going to be rewarded.”
But with increasing questions about growth and the direction of the market, Azzarello says she urges investors to keep their portfolios balanced and make sure their investments continue to generate income.
“Cobbling together a stable, diverse income stream is the thing to be doing if you’re an investor,” she said.
Here are the four strategies she’s formulated to help them do that:
(1) Buy international stocks
While US stocks have soundly beaten their international peers for years, Azzarello says overseas stocks have an important advantage from an income perspective because they tend to pay higher dividends. For example, the MSCI All Country World Index ex-US has a dividend yield of 3.5%, compared with the 2.1% yield for S&P 500 stocks.
“Overall international exposure provides a good yield and is diversified,” Azzarello said.
Investors can gain exposure to those stocks through funds like the SPDR MSCI ACWI ex-US ETF.
(2) Seek out preferred stock
Preferred shares are most commonly issued by banks, and the title reflects the fact that when a company is distributing cash, these shares take precedence over common stock. That means preferred shares usually pay much higher dividends.
If the company is doing well, the common shares will make bigger gains than the preferred shares, so an investor in that stock is giving up some potential price gains. But Azzarello says the improved income and the protection of preferred stock still make it a good idea.
“Preferreds are that odd hybrid between fixed income and stock,” she said. “It has more bond-stable properties to it but it has a nice dividend.”
She added that she was especially enthusiastic about “fixed-for-life” preferred stock, which makes guaranteed steady payments, as opposed to “fixed-to-float” stock, which makes stable payments for a set period and then converts to a floating rate.
One method to invest in a group of those stocks is through the iShares Preferred and Income Securities ETF.
(3) Put money in short-duration vehicles
In Azzarello’s view it’s a good time to take some money out of stocks to wait for more stability and opportunities. She tells clients who follow that advice to put their funds into short-term CDs and money-market funds, which offer minimal risk but will also juice returns slightly.
“I call that cash-plus-plus, cash with some va-va-voom to it,” she said.
(4) Load up on dividend growers
There’s a growing enthusiasm on Wall Street for companies that consistently raise their dividends. The calculation is that they’ll keep doing so and that that prospect of more dividend growth will feed back into the stock price. That could make those dividend growers more appealing than companies that pay more dividends but rarely raise them.
“Growing your dividend actually makes your stock more attractive,” she said.
One way to invest in those types of companies is the ProShares S&P 500 Dividend Aristocrats ETF.