Despite the turbulence in markets since the start of the year, BlackRock’s portfolio managers agreed at their mid-year forum that “the drivers of the best-performing companies’ equity gains have not actually changed much”.
They are “looking through the near-term noise and focusing on the big picture…focused on opportunities as policy making adds to volatility…and taking risk differently”, according to the latest BlackRock Investment Institute commentary.
Instead, they identified areas that are likely to be resilient or even benefit from the volatility which is largely caused by policy making that has induced a larger trade-off between helping growth and restricting inflation.
These included a conviction in the “AI mega force driving further returns”, pointing to Nvidia’s recent earnings beat despite tariff-related drags on earnings – but noted medium-term regulatory risk and the potential for slower deployment.
Among other sectors, they also like energy, not least because the adoption of AI is raising demand for reliable energy sources.
The portfolio managers at the world’s largest asset manager are also “refining their frameworks for taking risk, identifying multiple distinct types like macro, mega forces and relative value”.
For instance, they are looking for pockets of relative value – such as that created by the dispersion in the government bond markets. These include across different bond maturities and between countries where central bankers have different policies to manage the growth/inflation trade-off.
BlackRock’s biggest six-to-12-month (tactical) calls are US equities because it believes they will regain global leadership as AI provides earnings support, Japanese equites as shareholder-friendly corporate reforms remain positive and European credit which offers wider yield spreads than US corporate bonds.
The firm’s most substantial five-year (strategic) calls are infrastructure equity for its attractive returns, private credit which should “earn lending share as banks retreat”, short-term inflation linked bonds as tariffs could push up inflation and emerging markets such as India which are supported by structural forces.
