Four Post-Payday Investing Ideas

Four Post-Payday Investing Ideas
Carl Hazeley

about 2 years ago4 mins

  • Wilmington Trust is keen on European stocks in favor of US ones, as well as variable-rate bank loans, whose yields will rise in line with interest rates.

  • Sightline expects US energy stocks to benefit from high oil prices, but stock prices suggest some of the firm’s optimism is already priced in.

  • Delegate Advisors, meanwhile, suggests investing in REITs that are focused on industrial activities like logistics.

Wilmington Trust is keen on European stocks in favor of US ones, as well as variable-rate bank loans, whose yields will rise in line with interest rates.

Sightline expects US energy stocks to benefit from high oil prices, but stock prices suggest some of the firm’s optimism is already priced in.

Delegate Advisors, meanwhile, suggests investing in REITs that are focused on industrial activities like logistics.

So you’ve just been paid, covered your rent and bills, and you have some cash left over. Well, with inflation so high, you’re probably better off investing that money than leaving it gathering dust in your account. So here are four ideas – courtesy of three leading wealth advisors and Bloomberg – about where else you might want to put it…

Idea 1: European stocks

This idea comes from Wilmington Trust, which reckons European stocks look attractive right now.

The eurozone didn’t receive as much economic support from the European Central Bank as the US did from the Federal Reserve, meaning inflation – while still problematic – is less of an issue in the region. That’s important because too-high inflation might derail the European recovery, which would, in turn, derail its more economically sensitive stocks. As it stands, though, those stocks are in a strong position as the eurozone economy bounces back. What’s more, European stocks offer a higher dividend yield than US stocks – around 3% on average versus the US’s 1.5%.

Which ETFs are a good place to start?

The iShares MSCI Eurozone ETF (EZU) tracks large and mid-cap eurozone stocks and has an expense ratio of 0.50%.

Idea 2: US bank loans

Another idea from Wilmington Trust, this time recommending investors back “variable-rate senior bank loans”.

These are variable rate loans that banks offer customers and then sell off to other institutions (they often end up in mutual funds). Higher-quality bank loans offer a yield of about 3.5%, and that yield goes up as central bank interest rates do. As long as borrowers don’t default on their loans and the US stays recession free, this could be a good way to insulate yourself from the effects of rising rates.

Which ETFs are a good place to start?

The SPDR Blackstone Senior Loan ETF (SRLN) is growing fast, having doubled in the last year to nearly $10 billion in assets. It’s actively managed, making its expense ratio a relatively pricey 0.7%. But it has outperformed rival funds, which may justify its higher fees.

Idea 3: US energy stocks

Now this idea – which came from Sightline Wealth Management – is trying to capitalize on high energy demand. The firm recommends investing in US energy companies that are set to benefit from high oil prices.

Sightline argues that the transition to a carbon-free environment will take longer than anticipated. The firm also reckons that falling oil reserves, a lack of investment in new discoveries, and increasing demand will all contribute to high oil prices for a while. As a result, oil companies are poised to deliver high free cash flows that they can pass onto shareholders via dividends and share buybacks. And it’s not just “oil majors”, either: “mid-stream” oil firms specializing in oil transportation and storage look similarly attractive right now.

Which ETFs are a good place to start?

The Vanguard Energy ETF (VDE) holds 107 energy companies at an expense ratio of 0.10%, while the Energy Select Sector SPDR Fund (XLE) only holds 24 companies for a more concentrated investment – also at an expense ratio to 0.10%. Of course, both of the ETFs are up about 74% over the past year, suggesting Sightline’s positive outlook could already be baked into prices.

Idea 4: Real estate investment trusts (REITs)

This idea comes from Delegate Advisors, which advocates investors putting their cash into private REITs.

REITs typically offer investors a higher yield than fixed-income bets with less interest rate risk, as well as the opportunity to benefit from any increase in value of the properties owned by the REIT. What’s more, rents tend to rise with prices at large, offering real estate investors some protection against inflation.

While private REITs’ valuations are less correlated with stock markets, they tend to be less volatile than publicly traded REITs. But the opportunity’s still the same for both.

Which ETFs are a good place to start?

Delegate recommends focusing on real estate in fast-growing subsectors like logistics. With that in mind, the Pacer Benchmark Industrial Real Estate SCTR ETF (INDS) could be worth a look. It tracks public REITs that get their revenue from industrial real estate activities like warehousing and self-storage facilities. It has an expense ratio of 0.6%, but a relatively low yield of 1.4%, suggesting investors are already wise to Delegate’s idea.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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