INVESTMENT DIRECTIONS

Seeking the Olympic podium
for investors

Aug 16, 2016 / By BlackRock

With the Olympic games upon us, our experts discuss where we see investment opportunities that might be winners.

 


The Olympic ideal

Investing is often compared to a marathon, but perhaps the Olympic event it most resembles is the decathlon, which includes a variety of events involving a range of skills. More than ever, investing today requires keeping an eye on both short- and long-term opportunities, a flexibility to shift course but with a focus on the end goal. For investors, opportunities these days are rare, low returns are to be expected and increased volatility is a risk, but we still see some pockets of opportunity: emerging market debt, real estate investment trusts (for yield), and select emerging markets, municipal bonds and investment grade credit.

Performance enhancers

U.S. stocks continue to climb, fueled in part by the Federal Reserve (Fed) staying put and concerns about the rest of the world (the United States looks like the best place to be, for now). The problem: Earnings don’t justify the valuations, although the worst of the U.S. profits recession appears to be over. In other words, the “glass half full” news is already baked in to current stock prices. Our take: We’re neutral on the United States but believe investors need to be selective and expect low returns going forward. We favor dividend growers in particular.

Going for the gold

The strongest performing major asset class this year is, yes, gold. No surprise there: The year has been marked by political turmoil, causing investors to seek “safe-haven” assets, and the delay of further interest rate hikes by the Fed. Since higher rates would lessen the appeal of gold, which offers no yield, the delays have been beneficial. Our take: We are neutral in the short term, but gold plays a key role in a portfolio as a diversifier, which is particularly important as we see volatility remaining high.

The 50-meter freestyle vs. the 10-kilometer swim

The Fed may hike interest rates later this year, but we will be in a low-yield environment for some time to come and the maddeningly difficult search for income will continue. Our take: Cast a wider net, looking at real estate investment trusts, emerging market debt and preferred stocks, but be aware of the extra risk you are taking on.

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