Post-COVID-19 strategy: Portfolio diversification with quality stocks, says Barclays report

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Barclays reports that, in a post-covid world, [AI] trends in business models will stand to do well in the long run. As such, an investment opportunity for investors lies in sustainable bonds (like green bonds). The recent pick up in issuance of green bonds confirm that. The issuance remained above the trend in April and May, at $16.9 billion and $14.6 billion respectively. Overbond’s analytics monitors the green bond market, quantifies green bond premiums, and identifies green bond investor holding patterns.

Source: CNBC

The Indian market has recovered from the March’s sell-off after a phased re-opening of the economy and the question now being asked is what is the road ahead? Barclays believes that quality stocks especially technology and healthcare should be the winners.

The report also points out that business models that address sustainability trends, such as moves to a low-carbon economy and artificial intelligence should stand to do well in the long run.

From an investor’s perspective, Barclays highlighted it is likely that there will be a renewed interest given that highly leveraged companies have underperformed significantly.

In volatile times like these, the global research house feels that it is vital to stick with quality and diversify a portfolio because the chances of aggregate equity valuations to be capped post-COVID-19 is higher.

Selectivity can help position portfolios and also premium commanded by companies with “future-proof” business models will keep expanding and so growth is likely to outperform value over the long term, the report further added.

Should you look at green bonds?

An investment opportunity for the investors lie in sustainable bonds (like green bonds), said the report.

The recent pick up in issuance of green bonds confirm that. The issuance remained above the trend in April and May, at $16.9 billion and $14.6 billion respectively.

“It remains to be seen if green bonds in isolation will automatically lead to outperformance. Green bonds are “use of proceed” bonds and are not secured against any assets,” said the report. Once corporates have their contingency plans in place, the green bonds will soar, it added.

Other investment opportunities

The Barclays report advises investors to look at “quality businesses”, with relatively strong balance sheets. The mid and small-cap segment will also prove to be worthwhile.

“Consumer staples businesses should be the first one to revive, other sectors, such as technology, healthcare, and pharmaceuticals, should grow wider and deeper. The real estate sector may undergo a strategic shift in both offices and residential,” the report added.

Furthermore, the research house said that financials remain risky due to expected elevated levels of NPAs over the next two quarters. Hence, remain more constructive on defensive sectors, like technology, pharmaceuticals, and consumer staples.

Portfolio diversification remains key in current volatile market conditions with allocations to gold and private assets, it added further.