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Income Investing Tips, 3 Megatrends to Make Money: Franklin Templeton – Business Insider

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Franklin Templeton manages more than $1 trillion in assets in a slew of different firms, and it’s telling investors about paths to income that might help stabilize their portfolios as a brutal year comes to a close.
The firm held a “megatrends accelerate” webcast event this week and discussed three areas of investing it sees as promising in spite of the ongoing turmoil. All three involve a focus on defense and on steady income, which can cushion investors’ returns during bad periods and give them upside during better times.
Thanh Bui, a portfolio manager at Franklin Templeton’s private real estate investment unit Clarion Partners, said that it’s becoming easier for retail investors to get access to high-quality private real estate. She says the space generally does well when inflation is high, and that private real estate is an effective portfolio diversifier not strongly correlated to stocks, bonds, or public real estate companies.
“Favorable supply and demand market conditions typically allow landlords to pass costs to tenants in the form of higher rents,” she said.
Bui is especially positive on muti-family real estate because there is a huge supply shortage that won’t be resolved any time soon. While affordability concerns are affecting single-family home sales, she says there is a wider range of prices in rentals.
She’s also bullish on industrial real estate, where rents are surging because of high demand from e-commerce companies and onshoring.
Michael Clarfeld, a portfolio manager for the firm’s ClearBridge Investments division, says that energy companies have changed their behavior in fairly dramatic ways over the last half-decade. They’re now focused much more on free cash flow than on growth, which makes them less vulnerable to the boom-and-bust cycles that have defined the industry.
“Many of these companies have instituted a small fixed dividend that they can pay throughout a cycle that might be 2% or 3%, and then they have a variable dividend that goes up and down with the commodity,” Clarfeld said. “In a year like this where oil and gas price are very high, that commodity price exposure is basically going to flow directly through to the end shareholder in the form of a very attractive dividend, 10%, 15%.”
He says natural gas is the best place in the energy sector for investors because it will help bridge the gap between the fossil fuel economy of the present and a more alternative energy-reliant economy in the future.
Matt Quinlan, a portfolio manager at the firm’s Franklin Equity Group, says big-dividend stocks used to be concentrated in just a few sectors of the market, but now they can be found in technology, industrials, and financials, as well as traditional areas like banks.
“We view the dividend profile as a way to look at quality of a company. And oftentimes it’s s a signal about their future,” he said.
He says he’s especially interested in healthcare companies right now because of their strong cashflows and history of innovation, as well as the aging US population. Also extra-appealing are companies that can raise their dividends consistently.
“To do that really requires a company to have a strong financial profile, improving margins, cash flow profile, resilience of results, perhaps benefiting from innovation, a large addressable market in terms of their customers, and what the opportunity is over time,” he said.
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