By Callum Keown
We may have already seen the market highs this year and it’s time for investors to “head for the multiasset hills,” according to one fund manager.
The threat of a second wave continues to dominate the headlines with rising COVID-19 cases in Europe and the U.S.. New lockdown measures have come into force in Spain, and the U.K. government has ordering pubs and restaurants in England to close at 10 p.m. in a bid to contain the virus’ spread.
Ben Kirby, portfolio manager at Thornburg Investment Management said: “I hate to say it, but I’m telling investors that we may have already seen the highs for the year,” he said.
Kirby preferred stocks over bonds and recommended maintaining an above-average level of cash, as expected higher volatility ahead of the election meant “buying opportunities will be bountiful.” He added that Thornburg was in a “healthy risk-off / profit-taking mood right now,” following the historic recent rally.
When it comes to the sectors and stocks to play in the current market, Thornburg has plumped for high-yield, dividend-paying stocks. High-yielding stocks have generally outperformed the broader market for many decades, Kirby said, but have underperformed in 2020.
“We think high-yield, dividend-paying stocks pose a huge opportunity for longer-term investors: quality, compounding companies with sustainable and growing dividends should be increasingly sought after in a world where income from bonds is so scarce,” Kirby added.
He said the Thornburg Investment Income Builder Fund currently liked the global telecommunications sector, “a defensive sector with solid fundamentals, low valuation, high yield and has underperformed.” He particularly liked China Mobile /zigman2/quotes/204514293/composite CHL -3.45% , Orange /zigman2/quotes/201008076/delayed FR:ORA -1.31% and Deutsche Telekom /zigman2/quotes/201442689/delayed XE:DTE -1.95% , while retailer Home Depot /zigman2/quotes/208081807/composite HD -2.19% was “another great name” that plays into the work-from-home and stay-at-home theme, he added.
This chart from Howard Hook of EKS Associates shows that the top five companies in the S&P 500 /zigman2/quotes/210599714/realtime SPX -3.22% are up 34% year-to-date, while the bottom 495 companies are down 4% for the year. The S&P 500 price returns is up 2% in total. The top five companies are technology companies Microsoft /zigman2/quotes/207732364/composite MSFT -4.30% and Apple /zigman2/quotes/202934861/composite AAPL -3.75% , e-retailer Amazon /zigman2/quotes/210331248/composite AMZN -3.43% , Google owner Alphabet /zigman2/quotes/205453964/composite GOOG -5.03% and social media platform Facebook /zigman2/quotes/205064656/composite FB -5.07% .