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Amid Sell-off, Global Blue Chips Are a Buy: CIO

Thursday, 12 Aug 2010 | 4:48 AM ET

Following Wednesday's stock market sell-off, the debate over whether this is the beginning of a significant downturn for stocks is raging.

The VIX has spiked following the Fed's decision to pause shrinking its balance sheet and it looks like investors are going to be in for a volatile end to the summer.

With so much confusion out there, it is extremely difficult to pick a winner in the short term but one fund manager believes big cap stocks will do well as their staff struggle.

"Amid this confusion, it seems to us that the 'blue-chip' global company is the equity of choice," Guy Monson, managing partner and CIO at Sarasin & Partners, told CNBC.

In these companies, rises in inflation and input costs can be transmitted to customers and they have "tremendous" financial autonomy as unit labor costs are falling in the Western world "at almost the fastest rate for 50 years," while non-financial cash flow is rising at its strongest rate in several decades, Monson explained.

Companies exposed to emerging market infrastructure spending will outperform, as well as those doing business in the emerging economies, he said.

"Higher input prices, rising labor costs, rising interest rates and valuations which remain dependent on very optimistic earnings assumptions still suggest a year where companies selling into the emerging growth miracle deliver better returns than local players," Monson said.

Investors should be looking for dividend income as a way to create long-term income, as bond yields at are historic lows, he said.

"Over the last six weeks the extraordinary fall in yields has proved a welcome offset to higher equity market volatility, but at today's levels bonds simply cannot satisfy our total return targets or the inflation risk budgets we have across our private and charitable client base," Monson said.

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