- It is very difficult to invest in this bear market as there is no reliable precedent for it.
- T. Rowe Price’s John Linehan shared how he manages more than $16 billion in assets.
- Here’s how Linehan finds fixed income dividend stocks as the economy weakens.
John Linehan, chief equity investment officer at T. Rowe Price, has faced a lot of investing landscapes in his 33-year career. But he had never seen a market like this before.
Linehan told Insider in a recent interview that every up and down market is unique. And while they all have similarities, he thinks it’s a mistake to assume that what worked in past downturns will work today.
“No two bear markets are alike,” Linehan said. “No two recessions are alike.”
Linehan continued, “There’s no reason or rhyme for any of them. Trying to use a playbook from the past doesn’t necessarily mean going into the future.”
Linehan said investors today are rightly focused on the economic risks arising from the Federal Reserve’s decision to raise interest rates quickly as a way to slow persistent inflation. There is near-unanimous consensus among CEOs in a recent poll that this will lead to a recession as tight monetary conditions force consumers to cut back on spending.
Linehan, who manages more than $16 billion in assets in the T. Rowe Price Equity Income Fund (PRFDX), is currently trying to connect the needle between playing offense and defense.
“I want to be really thoughtful about the risks we take in portfolio in this environment,” Linehan said. “I don’t want to overtake my sled in terms of taking too little risk, and I don’t want to overtake my sled in terms of risking too little.”
When the market rebounds, Linehan said, it will do so quickly. But at the same time, he said it is wise to prepare for further downside risks if the Fed is forced to continue raising interest rates.
“What I am trying to do is build a portfolio that I hope will survive the test of either extreme,” Linehan said. “As a result, we’ve tried to have a portion of our portfolio be somewhat defensive and a portion abusive and we’re looking more for premium names that we think will do well over time.”
How to Invest in Dividend Stocks as the Risk of Recession Approaches
Unlike some portfolio managers, Linehan said he has a large portion of his net worth in his fund.
“I invest in money as it is mine because, in many ways, it is,” Linehan said.
As if that’s not stress enough, Linehan is responsible for managing the retirement money and savings of countless other people. This gives him a “healthy assessment of risk,” he said, but he can’t allow himself to be paralyzed by the risks of losing some of the $16 billion he’s overseeing.
“In terms of how much money we’re managing, I think if you focus on that, it can be confusing,” Linehan said. “So instead, I just try and focus on creating the best portfolio — the optimal portfolio. Regardless of whether it’s $100 million or $100 billion, I don’t think it should change.”
Although the T. stock income fund.
When it comes to finding the right stocks for his income-focused fund, Linehan said he looks for US and international companies with it. Attractive reviews And the Positive Basics That will Provides strong dividend yield And the Good performance over a long period of time.
Linehan said the main valuation metrics to consider are price-to-earnings (P/E), enterprise value (EV) sales, and price-to-book (P/B) ratios, as well as industry-specific measures. . He added that these metrics go hand in hand with the company’s trajectory and the story it can tell about its business.
The portfolio manager said that a great company is not always a great stock if it is overvalued, and on the contrary, cheap value stocks are sometimes discounted for good reason.
Linehan said high, reliable dividend yields are vital to the T stock income fund. He said the returns reflect the company’s financial health, ability to generate free cash flow, and capital discipline.
“We are looking for companies that have an attractive return but also have attractive attributes that go beyond return,” Linehan said. “I think just finding companies with the highest long-term return is a tough environment to be in because you really have to question the durability of that return on each investment.”
Finally, Linehan maintains a long-term view on his investments, which he said is easy to say but hard to do. His fund’s turnover is around 20%, which means he’s owned the stock for an average of five years. Markets can swing wildly between seasons, he said, but in the long run, it’s the company’s valuation, fundamentals and revenue that will either sink or swim.
“A lot of people are so focused on the short term and whether the company is going to fail or lose profits in the next quarter that it gets stuck in the trees, they miss out on the woods,” Linehan said. “One of the things I want to be sure of is that — I can’t necessarily tell you what the company is going to do in the next quarter, but I can tell you if we think they’ll have an attractive background over the next several years.”
This mindset means Linehan is patient with his holdings, especially during rock markets. Unless the stock thesis deteriorates to a point where it no longer holds true, Linehan said he’s inclined to hold it — even with unprecedented and unexpected risks on the horizon.
“We don’t pull the plug just because the company has been performing poorly,” Linehan said. “We will be patient. All too often, that patience is rewarded.”
Originally published at San Jose News Bulletin
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