MW 'Bond king' Bill Gross says stock-market's record-setting run will slow. Here are 4 options for playing defense.

By Joseph Adinolfi

The biggest gains from the U.S. stock market's record-setting bull run have likely already happened, according to billionaire "bond king" Bill Gross.

From here on out, the S&P 500 should deliver low-single-digit (but still positive) returns during the fourth quarter of 2024, and beyond.

While the bond king - who has increasingly been dabbling in stocks since his retirement a few years back - expects equities to keep on climbing (albeit at a slower pace), he also thinks now would be a good time to give one's portfolio a slightly more defensive spin.

Here are four stock-market options he recommended.

Allete

Investors should favor more defensively-oriented stocks - that is, those offering high dividend yields - while maintaining a relatively low allocation to bonds. Gross has warned in the past that Treasury yields could move higher as large budget deficits force the Treasury to continue increasing issuance.

Instead, investors should focus on equities with high dividend yields.

One option is Minnesota-based Allete Inc. $(ALE)$, which should deliver a 10% return over the next 12 months, Gross said.

Master Limited Partnerships

Gross has been touting these for a while.

Master Limited Partnerships are a kind of pass-through entity that invests in energy pipelines or storage facilities. The earnings they reap are passed along to investors in the form of dividends.

Western Midstream Partners $(WES)$, which Gross has advocated for in the past, is up 35% in 2024, according to FactSet data. And that doesn't even include payouts from its 8.9% dividend yield.

Annaly Capital Management

Gross likes Annaly Capital Management (NLY), a mortgage REIT, because of its relative stability and high dividend yield (it was at 13.2%, according to FactSet). It's down more than 5% from its September peak, as are many REITs.

Municipal bond closed-end fund

Specifically, Gross likes the DWS Municipal Income Trust KTF, which he said yields 7% or more tax-free. However, he added that there are between 20 and 30 alternatives out there.

And although the 7% yield might not last forever, these funds are trading at a discount to net asset value, and have shown no signs of lowering their dividends.

-Joseph Adinolfi

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October 10, 2024 12:04 ET (16:04 GMT)

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