Investors have several reasons to boost their defensive positioning as fears of higher-for-longer interest rates, sticky inflation, geopolitical tensions and an upcoming U.S. election rattle markets, according to Nuveen, which has about $1.1 trillion in assets under management.
Malik said her team recommends that investors stay invested, but adjust their allocation positions to reduce volatility and to capture potential returns from a recovering market, including by increasing their allocation to defense equities. “Such a posture would focus on high quality, cash flow generation and dividend growth,” Malik wrote.
“U.S. dividend growers are supported by positive fundamentals, sustainable growth potential, sound balance sheets and ample free cash flows, which together enhance their capital flexibility to return more cash to shareholders via increasing dividend payments,” Malik said. Such income could help investors lower the impact of inflation and elevated interest rates on their portfolios, Malik wrote.
Meanwhile, companies in the global infrastructure sector could benefit from steady demand of the services they provide, even during an economic slowdown. “This part of the equity market tends to be relatively well-insulated from higher debt costs and persistent inflation, thanks to inflation escalators built into underlying contracts,” according to Malik.