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Uncertainty in global markets coupled with persistently high inflation has raised the question whether there will be a hard or a soft economic landing. Andy Budden, investment director for equities at global financial services firm Capital Group, is in the latter camp and expects the U.S. Federal Reserve to keep rates high but not tip the economy into a recession. “That’s our view – so that will result in moderate growth and moderate inflation. That’s the classic ‘Goldilocks’ environment and historically it has been a very good environment for investing in equities,” he told CNBC Pro in an interview on Nov. 9, naming themes he is looking at favorably. A so-called Goldilocks economy is one which doesn’t grow too quickly, or shrink too much — in other words, it’s just right. Last month, a survey by Bank of America revealed that most fund managers also expect a soft economic landing, but that a growing number are betting on a recession and hard-landing scenario. Dividend Stocks Taking into account his expected economic outcome, Budden says that dividend stocks, with moderate returns of between 2% and 5% are among the best plays right now. Most investors often look for dividend stocks with a yield of around 6%, the investment director noted, adding that such stocks “can often be a trap.” “The reason they’ve such a high dividend yield is because there’s something wrong with the company. And so, the value of the stock has gone down, which means the dividend yield is high,” he said. “Very high-yielding stock can be good investments, but they can sometimes be investments in companies that do not have a good future. And so, when, when I think about dividend stocks, I’m thinking about companies that pay a moderate dividend.” Favorite sectors Budden identified healthcare as a key theme on his radar right now, given the innovation in drugs available to treat various conditions. One segment that has come to the fore recently is weight loss, as the GLP-1 (glucagon-like peptide-1) drugs — which are to treat obesity and diabetes — gain prominence. Pharmaceutical players Novo Nordisk and Eli Lilly are the key brands behind what Budden calls the “biggest drugs ever.” The move towards net zero carbon emissions by 2050 is another theme Bidden is looking at favorably. “I don’t know if we can get there, but I’m very confident that there will be a lot of companies that are very successful with helping that transition,” he said. He’s watching the battery, hydrogen, electrical grid and heating and air conditioning segments with particular interest. The changing world order — stemming from rivalry between nations and the imposition of trade restrictions — is also on Budden’s watch. “It’s very easy to be quite fatalistic about this and say, this is a bad thing. It’s actually an investment opportunity, because it’s not that globalization is dead, it is more that it is just changing shape,” he explained. Some effects of this include onshoring and nearshoring, which see businesses look to source products and staff closer to home. Beneficiaries from the resultant change in supply chains range from shipping companies to healthcare suppliers, Budden said. He also highlighted digital disruption as a theme to watch, given the recent shake-up that artificial intelligence has sparked. Microsoft recently launched its 365 Copilot feature — an artificial intelligence supplement to core products such as Word, Excel and other Office programs. Elsewhere, Google-parent Alphabet is scheduled to launch Bard, an AI-powered chat-based tool sometime next year. While it is still early days for the adoption of AI, Budden believes it will have a substantial impact on the economy and individuals over the next 10 years. Buy-rated stocks CNBC Pro screened for the top dividend stocks in each of the four themes Budden is looking at. All of the stocks have buy ratings from over 70% of analyst, according to FactSet. Here is what turned up:
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