Autumn breezes: 5 investing themes to consider

by Christopher Dhanraj, Blackrock

Although markets seem to seesaw almost daily, Chris discusses ways to navigate them in the weeks ahead.

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.

Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal.

Index performance is for illustrative purposes only.  Index performance does not reflect any management fees, transaction costs or expenses. Indexes are un-managed and one cannot invest directly in an index. Past performance does not guarantee future results.

Funds that concentrate investments in specific industries, sectors, markets or asset classes may underperform or be more volatile than other industries, sectors, markets or asset classes and than the general securities market.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets or in concentrations of single countries.

There can be no assurance that performance will be enhanced or risk will be reduced for funds that seek to provide exposure to certain quantitative investment characteristics (“factors”). Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. In such circumstances, a fund may seek to maintain exposure to the targeted investment factors and not adjust to target different factors, which could result in losses.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective. The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision.

This post contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc. by Markit Indices Limited, nor do these companies make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with the companies listed above.

©2019 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

ICRMH0819U-928431-1/1

This post was first published at the official blog of Blackrock.

Total
0
Shares
Previous Article

ESTEE LAUDER COMPANIES INC (EL) NYSE - Aug 20, 2019

Next Article

Saut Strategy: Charts of the Week (08-21-2019)

Related Posts
Subscribe to AdvisorAnalyst.com notifications
Watch. Listen. Read. Raise your average.