Where to invest $50,000 with Treasury yields rising again
2024 kicked off with a surprise move higher in yields, unnerving investors. The 10-year Treasury yield started the new year trading around 3.8% after a steep decline in late 2023. However, the benchmark yield quickly climbed back above 4%, putting pressure on stocks. The S & P 500 snapped a nine-week winning streak when the new year began, along with the Nasdaq Composite and Dow Jones Industrial Average . The three indexes recovered some ground recently, however, ending last week higher. Against this backdrop, CNBC Pro asked three strategists and money managers how they would allocate $50,000 with yields rising again. Here's what they said. Buy fixed income Komal Sri-Kumar, president of macroeconomic consulting firm Sri-Kumar Global Strategies, thinks it's time for the "60/40" portfolio to be phased out. The stalwart investing rule of thumb, long revered by investors, recommends a balanced division of 60% of assets into equities and the remaining 40% into fixed income. But against this kind of macroeconomic backdrop, Sri-Kumar believes investors should allocate across four different asset classes, starting with a 15% allocation into short-term, high-grade fixed income in the form of U.S. Treasury bills. Specifically, he recommended bills with a three- to six-month maturity, which investors can gain exposure to through exchange-traded funds such as the Vanguard Short-Term Treasury ETF (VGSH) or SPDR Portfolio Short Term Treasury ETF (SPTS) . VGSH has an expense ratio of 0.04%, while SPTS charges 0.03% of assets in fees. Both funds are up 0.3% this year. "If you are in those no-risk, highly liquid investments, you can get your cash in one or two days. For me, keeping a significant amount of money in a bank deposit is a loser," Sri-Kumar told CNBC. That's because he expects the banking sector to have an even bigger crisis within the next six months than last March's failures, which could contribute to another liquidity crunch in the system. Sri-Kumar thinks the Federal Reserve is wrong to expect interest rates to come down this year — and says they'll in fact go up. That's why he'd next direct 35% of his portfolio into relative high-grade fixed income investments, such AAA-rated or mortgage-backed securities, along with 10- to 30-year Treasurys. Exchange-traded funds that offer exposure to these assets include the iShares 20 Plus Year Treasury Bond ETF (TLT) and Vanguard Intermediate-Term Corporate Bond ETF (VCIT) . TLT charges 0.15% in fees and has sled 2.4% in 2024; VCIT has an expense ratio of just 0.04% and is down 0.1%. The last 50%, Sri-Kumar said, should be divided as 30% into listed equities and 20% into alternative investments. In particular, he underscored global real estate as a good long-term play. High-yield bonds or other areas close to default could also rise after another impeding credit event takes place. "I would have my powder dry for disasters to come up — for blood to be on the streets in the next few months. In that case, you have cash ready to go into your alternative portfolio," he said. For exposure to broader equities, investors could consider funds such as the Vanguard Total Stock Market ETF (VTI) , down less than 0.1% in 2024, or iShares Core S & P Total U.S. Stock Market ETF (ITOT) , down nearly 0.2%. Both funds have an expense ratio of 0.03%. VTI YTD mountain VTI chart For alternative assets, investors might look into the iShares Global REIT ETF (REET) or SPDR Bloomberg High Yield Bond ETF (JNK) .The former charges 0.14% in fees and has slid 0.6% this year, while the latter has a ratio of 0.4% and has added nearly 0.4%. Sri-Kumar added the caveat that within these general guidelines, investors might want to tailor their allocations to their individual preferences, such as their time horizon. Investors should also consider whether they prefer long-term capital appreciation or a more consistent cash revenue stream. Invest in dividend-growing value stocks Newton Investment Management's John Bailer recommended investors solely allocate into value stocks with sustainable and growing dividends. These names currently look extremely inexpensive versus the broader market, the portfolio manager told CNBC. One of the names Bailer favors is JPMorgan Chase , which is down 0.6% this year. The bank's strong and cash-flush balance sheet has benefited it as interest rates have moved higher. But JPMorgan Chase also stands to benefit if interest rates fall, which would reaccelerate their capital markets business through a pickup in M & A and IPO activity. Bailer is also overweight medical device company Medtronic , which has benefited from a post-Covid increase in elective procedures. So far in 2024, shares have gained 6.1%. "They've really turned around their business, they set expectations very conservatively, and they've been beating their expectations over the last couple of quarters," he added. MDT YTD mountain Medtronic stock chart Another name within Bailer's top 10 holdings is materials manufacturer and supplier CRH , which he said will profit from fiscal stimulus directed into infrastructure spending. The firm also trades at a large discount against its peers but has edged 0.7% lower in 2024. Finally, Bailer thinks Northrop Grumman is one of the highest-quality plays in the defense industry, especially as geopolitical tension drives global defense spending higher. "[Defense companies] are starting to be able to price up a lot of those contracts that are coming to offset a lot of those inflationary supply chain issues that they've seen," he said. Shares of Northrop Grumman have added 2.8% this year. Buy defensive growth stocks James Abate, founder and chief investment officer of Centre Asset Management, agreed with Bailer's assessment that equities are the best area right now for investors. Specifically, he recommended defensive, blue-chip, stable-growth stocks that also pay dividends. Abate thinks these assets will be the best to hedge against the market's hefty profit expectations for stocks in 2024, which he said were too high given the currently weak global economic landscape. "The market is too sanguine on the risks to lower growth," he said to CNBC. Instead, Abate believes that cost pressures will lead to a deceleration in margins. "From that perspective, defensive growth stocks typically have weathered that storm better because they benefit from the benign interest rate environment and have the ability to continue to put up earnings certainty — numbers that are quite stable in their orientation by nature," he added. Sector-wise, many of these stocks would fall into health care, consumer staples and utilities, Abate said. Some names he's bullish on include Medtronic, Johnson & Johnson and Colgate-Palmolive . "The common theme for all three is that each of them has been through a restructuring effort over the past couple of years and are actually undertaking new growth opportunities," he said. Specifically, Abate highlighted the efforts of Medtronic CEO Geoff Martha, who has embarked on a "pretty disciplined growth strategy" since starting the job in April 2020. By spinning off their kidney dialysis and patient monitoring businesses, the company has restructured to drive margins higher and focus on growth and innovation. Similarly, Johnson & Johnson spun off its consumer health business, Kenvue, providing a good catalyst to allow the company to focus on the higher-growth pharmaceutical business. The stock is up 3.6% this year. JNJ YTD mountain JNJ chart Abate also applauded Colgate's recent restructuring efforts, which have recently begun to lift up the company's profit margins. Shares of the consumer products company have ticked 1.5% higher.