Investors are on high alert for rising rates and higher inflation to start the year.
The S&P 500 has dropped 6% in January, its worst month since March 2020, when the US coronavirus pandemic and lockdowns became a reality. Meanwhile, the U.S. 10-year Treasury yield has risen to above 1.8%.
Kevin O’Leary is the chairman of O’Shares. He is a well-known entrepreneur.
“All of a sudden quality is important in inflationary times. Cash flow is important. Dividends are important. [so do]O’Leary stated that sectors with pricing power are those that are most important to the company.
He stated that it is important to invest in quality companies in all sectors. For example, investing in technology would be a mistake because of its high valuations.
He added that ETFs should be able to offer a variety of sectors and strong pricing power if they are to be used.
O’Leary uses his O’Shares U.S. dividend ETF to hedge against inflation. The ETF’s main components are Procter & Gamble and Johnson & Johnson, Microsoft, and Home Depot.
It is an ETF designed to have high-quality parts of the S&P. It’s a rules-based ETF which says “give me companies that do very well in inflation and have pricing power.” In inflationary times, do people pay more for consumable goods? Yes. O’Leary stated that they must eat, they’ve to buy health-care products, they have to do the things they do every day, even though these companies have the ability raise prices as inflation occurs.”
OUSA ETF was affected by the larger sell-off but to a lesser extent. It has fallen 2% this week, while the S&P 500 has fallen nearly 4%.
O’Leary said that high-quality, high-dividend stocks are important for this environment. But there’s another attribute he’s looking for.
“I like boring big and boring cash flows. This is what I like, because it reduces volatility when you have a portfolio that includes high-quality names. He said that OUSA was designed to do this.
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