Richard Marwood, manager of the AXA Distribution fund, said that with volatility set to continue and the risks of interest rate rises or geopolitical events impacting markets, stable stocks and diversification are key. He favours companies with ‘robust business models’ and attractive dividends in particular.
Marwood said that since the beginning of the year there has been a ‘rotation of performance’ from the small and mid caps to the mega caps. He also noted that corporate activity such as mergers and IPOs has noticeably shifted from smaller companies to big names like Verizon and Vodafone.
This is a trend set to continue in Marwood’s view, therefore investors with a generous number of mega caps in their portfolios should be well placed to benefit.
One sector Marwood says should be given particular attention is water suppliers. “Water is an everyday need and these companies have good pricing power, strong overall gross cash flows and good dividend predictably,” he noted.
Marwood also suggests a little additional diversification away from equities would be a prudent step. “Compared to gilts and cash, equities have been the star asset class for over 100 years, and a key driver of long-term returns, but this is not without its ups and downs in the shorter term,” he said. “Given market volatility is expected to continue, many cautious investors will want to diversify their exposure and seek allocation to other asset classes,” he added.
