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The first half of 2022 has been challenging for investors across asset classes, and the uncertainties plaguing markets remain — particularly with regard to inflation, interest rates and the possibility of recession. As we look toward the second half of the year, the investment management teams from Franklin Templeton gathered to discuss where income-seeking investors may find opportunities. Below are highlights of these discussions.

Risks present opportunities

“This volatile environment has also uncovered opportunities. One of these opportunities is in higher-quality fixed income securities, particularly those with longer duration or more exposure to interest-rate increases. We've seen historic selloffs in bond prices, and the yields that investors can buy into now are significantly higher than they were just six to nine months ago,” says Ed Perk, Franklin Templeton Investment Solutions

Capturing income with safety in mind

“Opportunities exist in the corporate credit space with companies that have pricing power given the inflationary backdrop. We think staying higher in credit quality is sensible given where we are in the cycle and economic headwinds,” says Brian Giuliano, Brandywine Global.

Loans as hedge

“Bank loans — also known as leveraged, floating-rate or senior secured loans — tend to act as a good hedge against interest-rate risk,” says Reema Agarwal, Franklin Templeton Fixed Income.

Dividends to rebut inflation

“Dividend growth is great in regular periods, but critical during inflationary periods. As inflation erodes the value of a dollar, growing dividends help to maintain purchasing power despite the increasing cost of living,” says Michael Clarfeld, ClearBridge Dividend Strategy.

Invest in quality

“In some ways, managing to income is part of managing volatility. Companies that have more predictable cash flows and more resilient dividends are likely to be less volatile. The key is to invest in high-quality, blue-chip companies, which allow for better dividend growth and stronger dividend resilience during difficult times,” says Matt Quinlan, Franklin Equity Group.

Alternative focus: Real estate and infrastructure

“Infrastructure assets act as an inflation hedge due to the largely pre-programmed way — through regulation and contracts — infrastructure adjusts to inflationary environments,” says Shane Hurst, ClearBridge Investments

“Historical precedence suggests that private real estate can effectively hedge inflation as a steady income-producing asset. The industrial and multifamily segments merit particular attention now,” according to Clarion Partners.

Read more on the midyear Global Investment Outlook here.

Disclaimer

This above is intended to be of general interest only and does not constitute legal or tax advice nor is it an offer for shares or an invitation to apply for shares of any Franklin Templeton fund. Nothing in this document should be construed as investment advice. Given the rapidly changing market environment, Franklin Templeton disclaims responsibility for updating this material.

All investments involve risk. The value of investments and any income received from them can go down as well as up, and you may get back less than you invested. Please consult a financial adviser for your investment needs.