Introduction

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, our investment management teams gathered to discuss where income-seeking investors may find opportunities. Below are highlights of our discussions. 

• “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.” 

Ed Perks, Franklin Templeton Investment Solutions

• “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.”

Brian Giuliano, Brandywine Global

• “Bank loans—also known as leveraged, floating-rate or senior secured loans—tend to act as a good hedge against interest-rate risk.”

Reema Agarwal, Franklin Templeton Fixed Income

• “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.”

Michael Clarfeld, ClearBridge Dividend Strategy

• “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.”

Matt Quinlan, Franklin Equity Group

• “Infrastructure assets act as an inflation hedge due to the largely pre-programmed way—through regulation and contracts—infrastructure adjusts to inflationary environments.”

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.”

Clarion Partners

Download our midyear Global Investment Outlook to continue reading. We hope it inspires you to think strategically as we navigate the rest of the year.

Stephen Dover, CFA
Chief Market Strategist,
Franklin Templeton Investment Institute