Safety Stocks: Mind The Debt – ValueWalk Premium
Safety Stocks

Safety Stocks: Mind The Debt

Rising rates are adding new risks to equity markets. Stocks of companies that are saddled with debt have underperformed recently. And leverage is especially high in sectors widely seen as safe havens.

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

We respect your email privacy

See 2017 Hedge Fund Letters.

MiFID II Slaughter Is Just Starting: Moody's

Safety Stocks Debt

Historically low interest rates have been the norm for more than a decade. When borrowing was so cheap, investors paid relatively little attention to company debt levels. But things are changing.

Hedge Funds Buy US Stocks, All Others Sell: BAML

Our research shows that stocks of companies with high debt ratios underperformed low-leverage stocks in the US, Europe and Japan during the first quarter (Display). Some heavily indebted sectors such as utilities, real estate and consumer staples actually have the lowest beta, meaning they tend to fall less when markets decline and are perceived as relatively safe. In contrast, riskier sectors with beta above the market (greater than 1.0), such as technology and financials, have negative debt positions because they are well capitalized and flush with cash.

Maybe it’s time for investors to abandon the old safety playbook and rethink what defines a risky stock. Beta alone tells a partial story. Investors who seek protection from market volatility in “safety” sectors may find themselves exposed to new risks from rising rates.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

Article by Nelson Yu, Alliance Bernstein


Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Here’s a Tip: Read What Professional Investors Read

ValueWalk Premium is for investors looking to improve their investment process AND keep up-to-date on the latest industry trends.

It’s THE resource for value investing and hedge funds. 📈

And with a free three-day trial and $29.99 per month thereafter, it’s a value in its own right.

Sign up now. 👇