Applying a Barbell Investment Strategy to Protect Against Stagflation


Since last Friday’s jobs report (10/8), the U.S. Treasury yield curve has flattened as short-term yields (1-5-year notes) float higher while yields in US dollars have flattened. Longer-term bonds collapse. The September jobs report intensified fears of stagflation with disproportionate monthly wage increases (one of the most rigorous indicators of inflation) coupled with decelerating job growth.

These concerns are prompting fund managers to shift to an equity allocation at the helm to hedge against potential stagflation, which poses a significant risk to the broader stock market over the next two years.

The barbell investing approach is used to protect portfolios against systemic economic and market risks by taking the 2 extreme ends of the risk-return spectrum. This strategy stays away from stocks whose value is strongly correlated with the broader market performance, which is typically in the middle of this risk-reward scale.

With weights on each polarized edge of the risk-return spectrum, investors can capture the annual (risk-adjusted) returns they are looking for while hedging against risk at the index level. Secular growth stocks that disrupt the market move to the beat of their own innovation-driven drum with little influence from broader stock movements. At the same time, high yielding low beta defensive sectors like utilities, REITs and consumer staples have little correlation with the market (low systemic market risk).

This equity allocation is similar to the combination of bond and equity investments that most of us have learned in the personal finance class, only this strategy replaces bonds with higher yielding stocks. The equity market remains the most attractive asset class for your capital in this environment of rising rates and inflation.

In this 4th Revolution video, I present 3 very high growth stocks well positioned to buy today such as SoFi SOFI, UiPath PATH and Splunk SPLK, as well as several ETFs, including Ark Innovation ETF ARKK by Cathie Wood, SPDR Utilities ETF XLU and SPDR Real Estate ETF XLRE that can be used to implement this dumbbell investing strategy.

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Splunk Inc. (SPLK): Free Stock Analysis Report

UiPath, Inc. (PATH): Free Stock Analysis Report

Utilities Select Sector SPDR ETF (XLU): ETF Research Reports

ARK Innovation ETF (ARKK): ETF Research Reports

Real Estate Select Sector SPDR ETF (XLRE): ETF Research Reports

SoFi Technologies, Inc. (SOFI): Free Stock Analysis Report

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