The politician who said “never let a good crisis go to waste” might have been onto something. This must not seem insensitive to Ukraine and all victims, but without a looming US recession, a credit crunch, a dividend cut or an explosion in bad debt, there is little reason to pessimize portfolios.
Unless you’ve invested in a Russia-themed exchange-traded fund or perhaps an emerging-markets index fund, the destruction of Moscow’s capital markets is a sideshow.
It is true that there are other dangers. Oil and grain prices are skyrocketing, but the United States is the top producer of oil, as well as many commodities that Russia may not export more widely. The dollar gains confidence and value globally with each new act of aggression. Inflation is tough and can get worse, but there are ways to shore up your investments.
On the positive side, the war and the oil shock are alleviating fears that the Federal Reserve will strangle growth by tightening credit too much. Long-term interest rates in the United States are not rising much more than they have already.
So while your bonds and bond funds are down at the start of 2022, they are priced no worse than breakeven now. I would channel voices like that of Baird Funds’ Bull and Baird blogger, Michael Antonelli, who says “the lessons of financial history are that the worst case has a funny habit of not happening.”
Here are some timely elements of an income portfolio to consider.
Oil and Gas will be high and tight for a while. I’ve said before to maintain exposure through pipelines and refiners, even when crude plunges. What matters is that the demand is strong.
Anything whose cash flows and distributions are volume dependent, such as Kinder Morgan (KMI, $19, yield 5.7%), Magellan channel partners (MMP, $49, 8.4%) or MPLX (MPLX, $32, 8.7%), should be a comfort.
Although apartment rents are skyrocketing, so are jobs and incomes – and yet the average apartment real estate investment trust (REIT) is down about 10% from its peak and a hair below the net asset value.
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Hold these REITs or buy down often overlooked names such as Apartment income (AIRC, $53, 3.4%) or central space (CSR, $104, 2.8%).
No category is further from the global turmoil than the municipal ones. And rising inflation pushes up property values and the income that goes into state and local coffers.
Upgrades are likely and the tax exemption is more valuable than ever. Baird Strategic Municipal Bond Fund (BSNSX) is having a great year. Note that municipalities as a class have only lost money in three calendar years since 1983.
Hikes that eclipse inflation have been common lately: UPS (UPS) increased its payout by 50%; Hewlett-Packard (HPE), 29%; Best Buy (BBY), 26%; Whirlwind (WHR), 25%; Eli Lilly (LLY), 15%. And there is more to come.
Anyone with a dividend growth portfolio should ignore the hardships of broad stock indices and smile at all that cash flow. It’s not too late to rack up the dividend kings.
The US dollar
Finally, the Invesco US Dollar Bull ETF (UUP, $26) is a reasonable alternative to a money market until savings accounts pay off again. The fund is an expression of the strength of the dollar against a basket of currencies without the risks and costs of currency futures markets.