“Whether we’re talking about Canadian aggregate bonds or maybe US investment-grade bonds, it could help them be better prepared for the rally that could follow as we come out of this recession-like environment,” Mathews says. “Quality is going to matter moving forward in the near to mid-term, more than it has for quite some time.”
Dividend-paying companies are increasingly in vogue as a haven for many Canadians, particularly as inflation puts the need for income in focus. Mathews says quality should be the watchword in that space as well, given the continued near-term volatility and potential economic slowdown coupled with pressure on corporate earnings.
“We’re seeing this already in many sectors. High-yielding companies without strong financial strength and discipline may not be able to sustain future payouts,” she says. “High-quality companies with a history of dividend growth, which are in a good financial position in terms of earnings and earnings quality and leverage, can help offset the risks of a sudden drop in that portion of the portfolio that some investors rely on for income.”
While the consumer price index has started to pull lower, Mathews notes that it’s still high compared to recent history. For investors in the U.S. fixed-income space, Treasury Inflation Protected Securities (TIPS) are another sound option for satellite portfolio diversification in the short to medium term.
Looking at alternative asset classes, infrastructure is also coming up as a post-pandemic portfolio opportunity. Aside from delivering consistent returns, many infrastructure companies benefit from the ability to protect their revenues through market cycles, either through long-term contracts shielded with CPI reference pricing or the ability to set prices as they operate in a monopolistic market.
