Retirees and investors should consider rising interest rates and inflation, investment management firm, DNR Capital warned.
The firm said it would be underweight the four major banks, property and Telstra.
According to DNR Capital’s portfolio manager, Scott Kelly, the recent support for bonds would be a short-term bounce and bond yields would probably bottom out.
As far as the banks were concerned, DNR said that although they might benefit from higher interest rates, there would be several “risks and headwinds” which would include the new levy, elevated housing prices, credit growth, bad debt normalisation and further capital requirements.
On the other hand, real estate investment trusts (REITs) valuations looked expensive, with a challenging growth outlook, particularly in the retail space, due to the prospective arrival of Amazon.
DNR also believed that Telstra would face long-term structural challenges, including increased competition for its mobile business, and expected that the firm’s dividend would be closer to 25 cents per share rather than 30 cents per share.
According to the firm, quality alternative companies for investors seeking income included Aurizon, Caltex and Henderson Group.
Commenting on Henderson Group, Kelly said: “The group’s merger with Janus will provide enhanced diversification, scale and distribution capabilities.
“In addition, there are a number of potential positive near-term catalysts for Henderson, including additional synergies, a rebound in European inflows and a recovery in performance fees off historical lows,” he said.
