QUESTION OF THE WEEK

What is your risk appetite amid inflation risks?

Every other week, we ask for your thoughts on a top question our portfolio managers and strategists are debating. We share the final poll results and our insights.  

    #QuestionOfTheWeek: How has your risk appetite changed amid fears of rising inflation risks?

    • Staying the course (64%)
    • Long-term shift (11%)
    • Short-term shift (13%)
    • Reducing risk (12%)

    Source: Blackrock Investment Institute, with data from SurveyMonkey. Note: Data does not include results from BlackRock social media polls.

    Poll results

    We asked you about your risk appetite amid inflationary pressure. Most respondents to our public poll (64%) voted “staying the course”, 24% checked reallocating risk – both short term and long term – and 12% selected reducing risk.

    Among BlackRock portfolio managers who responded to the poll, nearly 70% voted to reallocate risk, with more than half of them opting to doing so tactically. Over a quarter (28%) said they would keep their risk budget, and just 2% agreed on battening down the hatches and reducing risk.

    Facing inflation

    A portfolio manager from the Global Fixed Income Executive team did not see inflationary pressures derailing an overall pro-risk stance but was assessing whether to hold risk in the same places or seek out other tactical opportunities. ​

    A member of BlackRock’s Trading and Liquidity Group thought markets had digested inflation as a known risk and saw a continued stock market rally into year-end. The Global Lending and Liquidity Group saw the disconnect between future Fed decisions and market repricing creating a potential buying opportunity. 

    The Global Fixed Income team said that higher inflation was not a drag on equities: over the longer term, companies can absorb and pass on higher costs while also benefitting from higher revenues. They also saw the Fed falling further behind the curve, with inflation likely to stay consistently above its 2% target throughout 2022. Some expected substantial productivity gains from tech innovation and adaptation over the longer term – coinciding with a falling labor supply due to ageing demographics. Overall, they were reasonably positive on growth – supported by a green investment boom – and believed inflation and real rates will likely stay low. 

    The BlackRock Active Equities Group bucked the trend and saw reducing risk, given the high level of uncertainty in equity markets.

    Market take

    Equity risk premium – a measure of equity valuation that accounts for changes in interest rates  still suggests investors are receiving fair compensation for the risk they take. Equity valuations are near or above historical medians, unlike in fixed income where valuations are broadly stretched. 

    Overall, the BlackRock Investment Institute (BII) remains tactically pro-risk, but the path is narrowing for further gains in risk assets as markets and policymakers could misread the current inflation surge. Check out BII’s updated Market Risk Monitor.

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