Autumn breezes: Five investing themes to consider

Aug 22nd, 2019 | By | Category: Alternatives / Multi-Asset

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By Christopher Dhanraj, Head of iShares Investment Strategy at BlackRock.

Autumn breezes: Five 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 have roiled markets, even as dovish central bank policies 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 US 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 US 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 US equities.

Source: BlackRock.

Source: BlackRock.

  • 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.

Related ETFs

iShares US Technology ETF (IYW US)
iShares Exponential Technologies ETF (XT US)
iShares MSCI Eurozone ETF (EZU US)
iShares Latin America 40 ETF (ILF US)
iShares MSCI Brazil ETF (EWZ US)
iShares Core MSCI Emerging Markets ETF (IEMG US)
iShares MBS ETF (MBB US)
iShares Agency Bond ETF (AGZ US)
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD US)
iShares Edge MSCI USA Momentum Factor ETF (MTUM US)

  • 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.

(The views expressed here are those of the author and do not necessarily reflect those of ETF Strategy.)

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