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Applying a barbell strategy to equities Thumbnail

Applying a barbell strategy to equities

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 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

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

Value Positions Investment Theme Growth Positions
MS,BAC,C,GS,FHB Strong banking system
LEN Housing strength TPX
BUD, HEINY Consumption recovery AMZN, FWONK
FOX, DIS Millennials maturing GOOGL, FB
LBRDA, ADI Accelerated digitization AMT, NVDA, AAPL

Source: Manulife Investment Management as of Oct 5th 2020 

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.

2020 Recession: “V”ery different starting point than 2008

Graph: Household debt service (US)

Sources:  Barclays & Federal Reserve August 2020
2008 2020


  • Consumer leverage hit an all time high
  • Savings rate also at multi-decade lows


  • Consumer leverage at lowest level in 50 years, savings rate is high.
  • Credit Card debt reduced in 1Q & 2Q at record pace

Graph: NHAB Survey

Source: Ironsides Macroeconomics & NAHB August 2020
2008 2020


  • Speculative boom and poor underwriting fueled housing bubble
  • Consumers underwater in their homes
  • Household formation deceleration as Gen X cohort aged


  • Starts below 30 year average for a decade
  • Household formation accelerating behind Millennials since 2015
  • De-urbanization trend and remote working create new demand

Graph: Bank TCE ratio

Source: Barclays & FDIC August 2020 
2008 2020


  • Banks over-levered and require capital/bailouts
  • Years of growth constrained by balance sheet repair
  • Regulatory morass


  • Banks overcapitalized heading into the crisis
  • Fiscal stimulus cushioning recession
  • Banks administer PPP and part of Covid-19 solution

Sources: 1)  Barclays &Federal Reserve August 2020; 2) Ironsides Macroeconomics & NAHB August 2020; 3) Barclays & FDIC August 2020

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.

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