Forget the fact that stocks keep pushing higher as fall continues, it's time to get defensive. At least that's what Milken Institute fellow and head of Sri-Kumar Global Strategies, Komal Sri-Kumar, says in the attached video.
Despite of what we’ve been seeing the past 5 years, Sri-Kumar still believes a major equity market correction is coming when investors become worried about impending rate hikes. When rate hikes come, areas like the high-yield market, housing, and consumer loans will be hit, as well as corporate earnings growth, since all are dependent on the continuation of the current interest rate structure.
That’s why Kumar is continuing to be defensive with his sector selections.
Utilities:
“[Utilities] provide you with a cash return, you’re looking at it for dividends, don’t look at it for capital appreciation,” he says. “It’s a defensive area because even in a stock market drop, utilities are likely to do well compared with let’s say consumer discretionary or materials, so that’s the major reason for looking at utilities.”
Healthcare
Kumar is bullish on health care because whatever happens to the market, there will be a rising demand for medical services and pharma products because of an aging boomer set and increased adoption of Obamacare. Kumar urges investors to include health care as an “essential part of the portfolio over the long term.”
Energy:
Even energy, down recently due to a perceived oil glut, is a buying opportunity, Kumar predicts. Kumar is in the camp that believes sanctions against Russia will produce a Russian retaliation, meaning a possible reduction in natural gas supply to Western Europe. The rise of ISIS in the Middle East is another threat to oil fields as well. In Kumar’s view many factors could cause a shortage of energy, rather than a glut.
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