Veteran Wall Street fundie Rupal Bhansali says it's time to "reposition portfolios from growth to value" as high-interest rates make dividends more important for ASX share investors.
Bhansali, the chief investment officer at Ariel Investments, is in Australia visiting institutional clients.
In the Australian Financial Review (AFR), Bhansali says she is "very bearish" on the United States and Australian share markets.
This is because earnings expectations are too high, and valuations are too rich for this economic climate.
She explains that high-interest rates will likely spawn a protracted sell-off in growth stocks. She mentioned that many of them are trading on high valuations already.
Bhansali believes interest rates will be higher for longer, and this correction will be "death by a thousand cuts".
She explains that the recent rebound, which began in mid-June 2022 and caused a 12% spike in the S&P/ASX 200 Index (ASX: XJO), was a 'bear market rally'.
Bhansali is not alone in her thinking. Australian fundie Michael O'Neill of Investors Mutual recently wrote that capital growth will likely be lower for ASX shares over the next decade, making dividends "critical".
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Which ASX dividend shares should you buy?
Bhansali hinted at which companies are worth targeting and which are best avoided.
She said:
Now your total return in stockmarkets is going to come much more from dividends, I favour companies that don't have a lot of debt, indebted companies should trade at a discount to net cash companies, but they're not, so my portfolio is much more biased towards owning net cash companies.
Getting more specific, Bhansali said healthcare companies offered solid dividends and returns.
The ASX has 180 healthcare companies listed today.
The biggest ASX healthcare shares by market capitalisation are CSL Limited (ASX: CSL), Sonic Healthcare Limited (ASX: SHL), and Ramsay Health Care Ltd (ASX: RHC). They are trading on dividend yields of 1.12%, 3.18%, and 1.47% respectively, according to the ASX website.
She also pointed out that buying any stocks denominated in euros or British pounds today would likely deliver foreign exchange gains when sold down the track.
O'Neill favours "quality industrial companies, at attractive valuations, that pay strong dividend yields".
The ASX has 164 industrial sector companies listed today.
The biggest industrial shares are Transurban Group (ASX: TCL), Brambles Limited (ASX: BXB), and Auckland International Airport Limited (ASX: AIA). They are trading on dividend yields of 3.74%, 2.67%, and 0% (since COVID-19) respectively, according to the ASX website.
Which ASX shares are worth avoiding?
Bhansali said the recent 40% dividend cut by ASX 200 blue-chip share BHP Group Ltd (ASX: BHP) showed why investing in cyclical businesses for future income is dangerous.
O'Neill also recommends avoiding overweight positions in cyclical shares, including ASX resources stocks, and commercial property.
