(New York)

If you are looking for great stock yields from reputable names, look no further than preferreds. While the stocks are facing headwinds from rate rises, check this out: KKR, leading private equity firm, has been issuing preferred securities with 6.5% yields that have to pay out to holders before they do to common shareholders. This is not an isolated case, the average yield of investment grade preferred shares is 5.8%. This is contrasted to 4% for corporate bonds and 4.4% for municipals.

FINSUM: Preferreds are an old but niche asset class. They are safer than common stock, but less secure than bonds. Interesting to take a look at as they could fill a nice niche in many portfolios.

(New York)

If one thing is clear about markets right now, it is that they have no direction. Volatility has been very high, but not in any one direction, as prices have been bouncing around as if they were inside a pinball machine. In this vein, Barron’s makes the argument that markets may keep simply moving sideways, possibly through 2027. The article summarizes the view this way, saying “With the Fed continuing to raise rates, populism still threatening Wall Street, and baby boomers ditching stocks as they retire, the market could be stuck in a rut until the end of 2027”.

FINSUM: Nine years is a long time to move sideways! In the nearer term stocks may struggle as we are in a mid-term election year. In such times, they tend to do well in the fourth quarter.

(New York)

Markets have been very turbulent lately with no clear path forward. With that in mind, and given the stage of life (retirement) of many clients, a lot of advisors may be looking for some good yields to add to portfolios. Well, it might be good to take a look at utilities stocks. While the focus on investors has been on growth, utilities look good at the moment. Despite the fact that utilities generally lose ground when rates rise, and have lost 2.4% this year, well-run regulated utilities still look like a good buy. In particular, look for utilities that do not have massive amounts of capital tied up in a single asset, like a power plant. This means one should focus on utilities in the electricity transmission and distribution areas.

FINSUM: Beyond the yields, utilities would also seem to be quite good at defending against a downturn, as spending on them would be quite resilient in a recession.

(Washington)

Last week the DOL put out a warning to firms about launching and holding ESG investments. About the socially and environmentally conscious investments, the DOL reminded fund providers that fund performance needs to trump any social impact considerations of the funds. Despite the warnings, Bank of America has just launched five new model ESG portfolios.

FINSUM: What does this mean exactly? ESG portfolios have an explicit focus on social good, which at times could mean the funds either out- or under-perform. To us, this is an odd and pointless warning.

(Houston)

Many investors may still be shy about buying oil companies. After all, oil had a major fallout jut a few years ago and many factors, like green energy, seem to be playing against the future of oil. Accordingly, most oil companies are playing into this logic by cutting back on spending and boosting sources of alternative energy, but not Exxon. The company is boosting R&D spending and trying to grow its gas and oil output counter to all its rivals. Its logic is that demand for gas and oil is forecasted to grow considerably until 2030 as the world’s middle class surges to 5 bn people (versus 3 bn today). One fund manager comments on Exxon that “We think Exxon’s investment opportunities are world-class and that the best time to invest is when everyone else is retrenching”.

FINSUM: Exxon is trying to keep doing what it does best—produce oil. It is interesting they are taking a different approach to the market, but that means they are probably going to have high beta. If you believe in the strategy, it is an interesting buy.