A buying opportunity in multi-asset income?

Why Adam Kramer believes current market dislocations have created an opportunity for income investors.

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"From a tactical multi-asset income perspective, unprecedented market dislocations have created longer-term buying opportunities in several income-oriented asset classes,” says Adam Kramer, lead manager of Fidelity® Multi-Asset Income Fund (FMSDX).

Kramer believes, as of late March, investors may be pricing in scenarios that are too draconian, based on his view several years out. For this reason, he’s added to certain portfolio positions on weakness.

Within the equity market, Kramer has invested in large US blue-chip, dividend-paying companies with ample cash on their balance sheets. He believes many of these companies can survive the coronavirus pandemic and possibly thrive after it's over. He's particularly focused on consumer staples, pharmaceuticals, and information technology stocks that sold off substantially over roughly the past month.

Kramer also thinks high-yield bonds (with credit ratings of BB and below) look interesting. He favors BB-rated issues in the cable/telecommunications sector. Many of these bonds are selling at a discount, with yields in the 7%–8% range, which is nearly double that of early in the year.

In terms of investment-grade bonds, Kramer believes too much bad news has been priced into US Treasurys, which have rallied and no longer look attractive to him. However, he is finding opportunities among investment-grade corporate bonds and preferred stocks, following their recent sharp declines.

Kramer has favored large-cap, blue-chip issuers (with credit ratings of BBB and above), notably in the cable/telecommunications, defense, regulated utilities, consumer staples, and large-cap US banking segments. Many of these securities are now selling at a discount, with yields in the 4%–5% range for some investment-grade bonds, and low-teens for some preferred stocks.

Lastly, convertible bonds continue to provide investors with both equity and income exposure. Certain convertibles issued by companies with underlying stocks that looked expensive are currently looking more reasonably priced, he notes.

Kramer is encouraged that the US Treasury, Federal Reserve, and federal government at-large continue to be pragmatic and supportive of the economy. He believes if worst-case scenarios don’t play out, the prices of many income-oriented investments will move higher, and if markets continue to decline, he expects their dividends or interest to help cushion the impact.

Learn more about this manager and his fund
Adam Kramer is lead manager of Fidelity® Multi-Asset Income Fund.

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