With markets at elevated levels, investors may be looking for a safety stock. How about one outside the usual suspects? Here is a suggestion—Goldman Sachs. Yes, we know, that sounds odd considering that investment banks tend to have wildly unpredictable earnings because of fluctuations in trading revenue. However, the bank has just made a big dividend boost from 85 cents to $1.25 per share, which is likely to significantly elevate its status with dividend-seeking investors. Goldman is also diversifying away from its highest risk businesses and smoothing out its revenue by focusing on a more steady Main Street-oriented suite of products.
FINSUM: We think the jury is still out on Goldman’s success at retail banking products. That said, the prevailing narrative about its transformation and the dividend boost will help it be less volatile.
The market’s outlook grew significantly dimmer yesterday. The Fed made clear that investors should not expect a rate cut in a July, which took the wind out of equity investors’ sails. With that in mind, here is a list of ten stocks that should help investors win in a downturn. The theme here is “low volatility” stocks, or stocks with less risk that should outperform the market in a choppy environment. The list: Aflac, Amdocs, American States Water, Atmos Energy, DTE Energy, Duke Energy, McDonalds, NextEra Energy, OGE Energy, WEC Energy Group.
FINSUM: Given the Fed’s reversal from what the market thought was its stance yesterday, right now does seem like a good time for low volatility stocks.
Low volatility stocks aren’t behaving the way they are suppose to right now, but that is what makes them interesting. Stocks chosen because of their generally low volatility tend to perform poorly in up markets as their low beta means they underperform benchmarks. But the nature of this year’s rally has defied that idea. Stocks are up 18% this year, but there are still many worries about the economy, the combination of which has given a big boost to otherwise boring stocks. Even during the losses of May to June, low vol stocks barely lost anything even though the market plunged.
FINSUM: There are a number of low vol funds like USMV and SPLV which are good choices for this area. These stocks seem like they have found a sweet spot in the current market environment.
With all of the volatility of the last months, bond ETFs are taking on a new life. As an asset class, bond ETFs have surged in popularity in recent years as a much easier and cheaper way of accessing bond market liquidity. Recently, bond ETFs have seen their role morph. Whereas they have often been seen as a safe haven from periods of volatility, they are now being used as a risk management tool, says the head of iShares U.S. Wealth Advisory Product Consulting at BlackRock.
FINSUM: So many of the newer bond ETFs are designed to thrive in volatile markets, not just provide a low volatility safe haven. This means they are more of a proactive than reactive product.
The chances of a war breaking out with Iran are not minute. They are probably not high, but significant enough that it is worth having a plan. It may be unseemly to think about asset prices during armed conflict, but just because a war has broken out does mean one’s duty to protect clients ends. The key thing to remember is not to panic. Selling into a panic is a bad idea, and historically speaking, the market tends to be higher six months later anyway. Generally speaking, that is the trend in past armed conflicts. There is an initial fall in stocks, only to be followed by a subsequent rise over the next six months to above the starting level.
FINSUM: We do not think a war with Iran will happen. This seems more like simple political wrangling.