Autumn breezes: 5 investing themes to consider

It may not feel like it yet, but fall is just around the corner. And just as the return of autumn offers the relief of cool breezy spells, but interspersed with late heat waves, so are the seesawing markets demonstrating a shifting environment. Rising geopolitical tensions and trade disputes and concerns they would contribute to slower growth have roiled markets, even as dovish central bank polices may extend the long economic expansion. Investors are responding by seeking to boost portfolio resilience to withstand volatility.

Against that backdrop,  we highlight five investor ideas for the weeks ahead in our latest publication, the Autumn Investment Directions.  Our take:

In U.S. equities, we still like tech, though distinguish between the cyclical versus the secular. With the economy in the late stages of the business cycle, we continue to favor a moderately pro-risk posture in U.S. equities. Technology remains one of our preferred sectors, but it is important to recognize that some sectors are more tied to the business cycle (like semiconductors), while others may benefit from long-term tailwinds (like software).

Despite the risks, turning more constructive on European stocks. We are upgrading the region from underweight to neutral. The European Central Bank’s fresh monetary stimulus could provide a tailwind for equities. We believe the negative sentiment toward the region may be overdone (while recognizing obvious risks) when comparing Europe’s risk to emerging markets and its valuations to U.S. equities.

Within emerging markets, focus on Latin America. We have downgraded emerging markets to neutral, but we see opportunities in Latin America. Valuations are attractive for many of the region’s economies compared to other emerging markets, particularly with respect to earnings expectations. We are not sanguine about the risk of trade tensions but note that easing financial conditions and progress on political reform have already helped drive asset prices this year.

Fixed income: Navigate the fall in interest rates by strengthening the ballast in a portfolio. The Federal Reserve’s 180-degree pivot from interest rate hikes to rate cuts has had a significant impact on fixed income markets. Still, we believe this is an important time to strengthen the ballast in one’s portfolio through quality fixed income investments, namely investment grade bonds and agency mortgage-backed securities.

Min vol rallies but momentum is still reasonably valued. After a challenging start to the year, both minimum volatility and momentum stocks outperformed the broader market in the second quarter. This reinforces how investors are looking to build resilience in their portfolios, while not missing out on market rallies. Min vol valuations appear stretched at this point, while momentum valuations appear supportive.

Related iShares Funds

iShares U.S. Technology ETF (IYW)

iShares Exponential Technologies ETF (XT)

iShares MSCI Eurozone ETF (EZU)

iShares Latin America 40 ETF (ILF)

iShares MSCI Brazil ETF (EWZ)

iShares Core MSCI Emerging Markets ETF (IEMG)

iShares MBS ETF (MBB)

iShares Agency Bond ETF (AGZ)

iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

iShares Edge MSCI USA Momentum Factor ETF (MTUM)

Chris Dhanraj is the Head of the iShares Investment Strategy team and a regular contributor to The Blog.

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