“We are not positioning one set of views as the set of views that are expected to work for the entirety of the upcoming year,” she said. “We have to be a lot more nimble and have to be more frequent in making adjustments to portfolios.”
Despite market volatility, investors should not give up on equities, BlackRock managers said. In the long term, equities have a proven track record of having the best returns toward building wealth, said Tony DeSpirito, chief investment officer of U.S. fundamental equities at BlackRock. “I would recommend staying invested, but do so in a resilient way, and I see lots of opportunities for active management,” he said. It is not all positive news for equities as the S&P was down as much as 25% earlier this year. However, while earnings have held their own, thus far, DeSpirito was not confident they would hold up in the long term. "There is no telling when the Fed’s actions will impact the economy, meaning the outlook for earnings could be softening, he said.
So, while lower equity prices have yielded opportunity, DeSpirito recommended choosing investments that will protect portfolios against those soft earnings.
“I think we should stay invested because equities are on sale, but we should do so in a resilient way because of the earnings risks that are out there,” he said. “Equities on sale are a better deal now than they were at the beginning of the year.”
In terms of putting together a portfolio, most consist of stable funds and those that fluctuate. DeSpirito is leaning more on the stable side and interested in certain sectors like healthcare, utilities and staples, with healthcare being the strongest option of the three.
As for those on the cyclical side, DeSpirito favors energy and financials over industrials. The reason is the former two tend to benefit more from rising interest rates. Industrials tend not to perform as well, he said.
Finally, those looking for liquidity can turn to iShares and ETFs as a tool for this space, said Gargi Chaudhuri, head of iShares Investment Strategies, Americas, at BlackRock.
In addition, there are opportunities currently in the fixed-income space as well, she said, due to the Fed Funds rate, which jumped to 4% from 0.25% in just nine months. This had an adverse impact on equities and fixed income.
This rapid normalization of monetary policy has spurred a reset among asset classes, creating huge opportunities, particularly in fixed-income markets, Chaudhuri explained.
The firm’s iShares 2023 Investor Guide explains that an investor could earn more than 5% in a low-duration, high-quality fixed-income bond. This demonstrates the growing importance bonds will play in an individual’s overall portfolio.
“Higher yields in fixed income also means that investors do not need their equity allocations to work as hard, and within their equity allocations they can focus on earnings resiliency in the face of an uncertain economic environment,” the guide said.