Market insights and portfolio ideas

THIS VIDEO IS MARKETING MATERIAL

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Welcome to our winter outlook. I’m Karim, from iShares, and in this video, I’m going to outline our latest investment views.

Updates to our investment outlook are underpinned by two key principles. Firstly, investing is all about the long term, so we try to identify opportunities that we think can stand the test of time. Secondly, however, we need to stay alert to opportunities and risks that might develop, and adapt our outlook accordingly.

So our first theme remains centred on the US and the relative strength of its economy and stock market. In our last update, we noted that US corporate earnings growth had started to broaden out after largely being driven by early AI winners over the past couple of years. This trend has gathered pace and we therefore see opportunity in equal-weight US stock market exposures like the S&P 500 equal weight index, where each company has the same weight and investors can therefore gain greater exposure to companies and sectors outside of the tech giants that tend to dominate the standard S&P 500.

Our second theme is also an evolution of an existing story, about the opportunity in bonds. Central banks such as the Bank of England started cutting interest rates in 2024, but they didn’t cut as far or as fast as many investors had been expecting, largely due to certain components of inflation staying pretty sticky. That means investors can still earn attractive levels of interest from bonds issued by developed market governments, such as UK gilts, which also tend to be relatively low risk, because these governments usually have a good track record of repaying interest when it’s due and repaying the value of the bond when it matures.

We introduce another element to our bond view, which is ‘duration’. The greater the length of time until a bond matures, the longer its duration, and the higher the uncertainty around interest rates, economic growth and various other factors that could impact the value of the bond. Therefore, investors tend to view long duration bonds as higher risk than short duration bonds, and they usually demand a higher interest rate, or ‘yield’, for taking on this additional risk. However, the difference in yield between short duration and long duration gilts is currently quite small, making short duration gilts relatively attractive for investors seeking income with minimal risk.

Finally, we look to take advantage of developing trends, in particular AI, and the companies that could be set to benefit from the next stage of its evolution. While we still see potential for the companies involved in what we call the build-out of AI – that is, the companies developing semiconductors, data centres, AI models and the power systems that support them – we also look ahead to the adoption phase, and the companies that could benefit from using AI to potentially improve efficiency, lower costs, increase revenues and grow profit margins.

For more on these themes and our latest investment ideas, check out our latest outlook.

This video is marketing material. Before investing please read the Prospectus and the PRIIPs KID available on www.ishares.com/it, which contain a summary of investors’ rights.

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