Eq: Large Cap
One corner of the bond market, or rather credit market, is having a tough time and it may be a negative sign for the rest of fixed income. CLOs, or collateralized loan obligations, which have been a star for several years, recent tumbled. In aggregate, CLOs dropped 5% in October, and those close to the market see more volatility to come. According to Citigroup “We think there’s more volatility coming … We recommend investors reduce risk and stay with cleaner portfolios and better managers”. CLOs are a key funder of the leveraged loan market, and weak demand there can flow through to boost borrowing costs to all corporates.
FINSUM: This is akin to a warning coming out of the high yield market, as what it reflects is worries about how leveraged companies might handle a downturn.
Are you looking for a group of high-paying and stable income stocks? We’ve got a great list for you. All five in this group yield over 5% and all seem to have a stable outlook—which is not typical once dividends get to this level. Take a look at AT&T (5.3%), Schlumberger (6.1%,) AbbVie (5.4%), Simon Property Group (5.6%), and Iron Mountain (7.5%).
FINSUM: This is a highly diversified group of picks, which makes it quite interesting. AT&T seems like a good bet. Some runners-up include Macy’s (10% (!)) and Victoria’s Secret (7.1%).
ESG has been on the rise. In its infancy, ESG was largely diminished to a niche sector, but increasingly large amounts of investor capital are flowing based on ESG considerations and clients are getting more and more focused on it. Now there is a new tool to score and rank mutual funds based on ESG factors. The tool is from As You Sow. It is still a work in progress, but is quite useful for getting an idea for where funds rank against one another.
FINSUM: This tool is still in development, but we could imagine that this could become quite useful as ESG is famously hard to grade.
Most analysts and investors are quite bearish on the market at the moment despite the fact that the trade war is looking less worrying. That said, there is still a lot of indecision over where the market is headed. With that in mind, Barron’s is arguing that buying beat up but high-quality dividend stocks is a safe bet no matter which way the market heads. Here are five stocks to look at: UnitedHealth, food products company Ingredion, drug company Eli Lilly, Kohl’s, and Ralph Lauren.
FINSUM: There are a lot of different types of names here. We are most interested in Ralph Lauren, which is trading at a 25% discount to its historical valuation. The company is very healthy—easily covering its 3% dividend with earnings—and it it not facing the same headwinds as other retailers because it is mostly a wholesale business, meaning it is agnostic to the shift to online selling.
There is serious trouble brewing in the riskiest corners of the debt market. The lowest rated group of corporate bonds have seen their yields rise for months as a host of factors are causing losses. Whether it be the switch to ecommerce, poor energy prices and renewables, or prescription drug regulations, companies across multiple sectors have been getting hammered. The problem is that the issues hurting these CCC rated companies are not just isolated to them, the move in sentiment and selling is spreading to the broader high yield and speculative loan market. More companies are being downgraded too, and default rates are picking up.
FINSUM: Rather than a panic, this is a broad-based and fundamental move away from risky debt. It may not lead to huge losses—yet—but expect spreads to keep rising.
Barron’s has published a wide-ranging article look at the whole “income” universe and where investors should put their money. The caveat is that it is a hard time to invest for income because yields are so low. That said, there are some opportunities. A few short-term bond funds look quite compelling at the moment. Two funds from Pioneer (MAFRX) and Pimco (PFIAX) both look interesting, sporting yields of 3-3.5% on bonds with much lower rate risk. Junk bonds are yielding 6%, but you can get over 7% in closed end junk funds. Munis look like a good buy on a fundamental basis, but their yields are quite low; versus Treasuries they still have good relative value, however.
FINSUM: The trick here is that many want to keep some bonds in their portfolio despite what has gone on in fixed income markets. We would stick to short-term bonds for the most part as they have comparable yields to longer-term offerings, but less risk.