Fed’s rate hike ‘offers good time to invest’

The move by the US Federal Reserve to begin raising interest rates in the world’s largest economy has had a dire effect on many yield-sensitive investments such as cash and fixed income. But it has also affected the share prices of many wellknown global brands.

According to Marriott Asset Management, this is the ideal time to invest and take advantage of a once-in-adecade bargain.

“At the moment you can buy quality businesses at really good prices and this can be seen in the dividend yields of some great companies that we own including the likes of Pfizer, Coca-Cola, Colgate, Unilever, Diageo and Johnson & Johnson,” says Duggan Matthews, head of investments at Marriott Asset Management, which manages about R21bn.

The quality of the companies can be seen in their respective global franchises that extend to all corners of the world and their ability to grow earnings and cash flows.

The relative attraction of these counters has been amplified by the prospects of the lacklustre local economy where Marriott, as an income investing specialist, is underweight in some large sectors that include listed property. Matthews says the market’s reaction to the prospect of higher interest rates in the world’s largest economy has been overdone as investors have repriced some income producing assets downwards.

“When people only see the risks in a stock, it is probably a good time to invest,” he says, “and this has meant the yields are some of the best we have seen in recent memory.”

The upside of the market’s anxiety has meant that many of these high quality companies are trading at dividend yields of 3%-4%. “Take the example of Procter & Gamble which is currently trading on a dividend yield of 4%,” says Matthews. “The last time we saw its yield at these levels was 30 years ago.”