Applying a barbell strategy to equities

Advisor Focus Magazine

How Manulife’s Sandy Sanders is finding opportunities in the U.S. markets.

Traditionally, the barbell strategy is an approach applied to the fixed-income world – helping investors to strike a balance between risk and security. A portfolio is weighted on one side with higher risk options such as high-yield bonds that offer the potential for bigger return on investment, and the other side of the portfolio is balanced out with low risk, low return investments, such as government bonds.

When it comes to equities, applying the barbell strategy may be less common, but no less effective. Sandy Sanders is the Senior Portfolio Manager with the Manulife U.S. All Cap Equity Fund, and says the economic downturn related to the COVID-19 pandemic presents an opportunity to invest in both growth and value stocks.

“Over the last several years, stocks in certain high-quality growth companies have become more expensive. But as the COVID-19 medical crisis is addressed and life gets back to normal, I believe there will be positive upward fundamental tailwinds for many sectors including banks, energy, housing, industrials and consumer discretionary.”

Economic indicators point to a slow and steady recovery heading into 2021, and Sanders says the Manulife U.S. All Cap Equity Fund is well positioned with exposure to growth stocks, balanced with value opportunities currently available at significant discount.

Manulife U.S. All Cap Equity Fund. Balancing Secular Growth and Value Recovery

On the road to economic recovery, Sanders says there are a few key factors that make this a very different situation than the market shock of 2008. The beginning of 2020 saw strong employment figures, rising wages, robust housing starts and a well-capitalized banking system – a strong growth economy capable of holding up under the stress of the current health crisis.

Household debt service (US) NHAB Survey Bank TCE ratio

It’s all about the starting points in a recession. If we contrast the downturn of 2008 with the recent events of early 2020, there are stark differences. Back in 2008, the consumer was over-leveraged with very little savings. By comparison, consumer leverage at the start of 2020 was at its lowest level in 50 years, along with credit card debt dropping at a record pace. In 2008, housing was in a speculative bubble that popped to reveal poor regulatory methods. Today, housing is a different story as the millennial demographic looks to set down roots, and a de-urbanization trend creates even more demand. The banking system, which famously nearly failed in the ‘08/’09 recession, is much stronger today. Heading into this 2020 health crisis, banks were over-capitalized and fiscal stimulus helped to cushion the economic shocks. 

The starting points of this recent recession were much more positive than those of 2008, suggesting that a faster recovery is possible. Sanders believes we’ll see a broadening out of the market as many parts of the economy start to come back online. Therefore, large cap financials, the housing industry, parts of the energy sector and industrials, as well as consumer discretionary are all poised to participate in a much more positive fashion as we get back to normal life. The Manulife U.S. All Cap Equity Fund, managed by Sanders, utilizes the barbell strategy to provide access to growth stocks in the short term, while taking advantage of undervalued securities in the value space that are trading at a discount to intrinsic value.

For greater insight, check out Sandy’s video on the economic recovery and his barbell strategy approach.

The views expressed are those of the sub-advisor of Manulife Investment Management and are subject to change as market and other conditions warrant. Information about a portfolio's holdings, asset allocation, or country diversification is historical and is no indication of future portfolio composition, which will vary. Certain research and information about specific holdings in the Fund, including any opinion, is based on various sources believed to be reliable. All overviews and commentary are for information purposes only and are not intended to provide specific financial, investment, tax, legal, accounting or other advice and should not be relied upon in that regard. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. The commentary does not constitute an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or investment product. This material should not be revised as a current or past recommendation or a solicitation of an offer to buy or sell investment products or to adopt any investment strategy. Manulife Investment Management is not responsible for any damages or losses arising from any use of this information

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts as well as the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Manulife Funds and Manulife Corporate Classes are managed by Manulife Investment Management Limited (formerly named Manulife Asset Management Limited).  Manulife Investment Management is a trade name of Manulife Investment Management Limited.

Manulife, Manulife Investment Management, the Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.