A new investment playbook

Karim Chedid: Hi, welcome to Around the World: Spotlight on our 2023 Outlook. Over 2022, we’ve seen a new regime of greater macro and market volatility play out, and we don’t think it’s changing any time soon. In this environment, we think a new investment playbook is needed: we believe it’s time for investors to prepare to make more frequent portfolio changes, and get more granular with views. I’m joined by Ann-Katrin Petersen, senior investment strategist at the BlackRock Investment Institute, who will walk us through BlackRock’s new investment themes for 2023.

Ann-Katrin Petersen: Thanks Karim. In the new regime, central bankers can’t ride to the rescue when growth slows, as they have in the past. They are overtightening policy to try to rein in persistent inflation, causing recessions in the process. We expect inflation to cool over time, but stay persistently higher than central banks’ 2% targets.
We think what matters most is how much of the economic damage is already reflected in market pricing, so our first investment theme is ‘pricing the damage’. We’ll be keeping a close eye to see when and where it may be time to dial risk back up.

The new regime also calls for ‘rethinking bonds’, and that’s our second theme. 2022 has taught us that long-term bonds don’t work well as portfolio diversifiers in an environment of higher inflation and volatility. With higher yields all around, we like bonds for income, especially investment grade credit.

Our third theme is ‘living with inflation’. In the new regime, we see several long-term structural drivers supporting persistent inflation. This means that what worked for investors in past recessions won’t work now, in our view: the portfolio implications are big, and navigating markets in 2023 will require more frequent portfolio changes.

Karim Chedid: Thanks, Ann-Katrin.

In theme 1, we’re pricing damages to understand whether – and where – it might be time to dial up risk. We’re looking for opportunities to turn positive – like in banks and energy– as well as more granular exposures that may help us build portfolio defence, like the healthcare sector and momentum factor. 

We’re rethinking fixed income in theme 2, bonds for income instead of bonds for ballast. We prefer an up-in-quality approach, with a high-conviction overweight to investment grade credit, but we see pockets of opportunity in high yield, too. In government bonds, we prefer inflation-linked and short dated exposures, as we still see challenges facing long-term bonds.

Finally, in our third theme, we’re learning to live with inflation by looking to diversify our sources of return, and position for inflation risks. We like infrastructure, which may offer diversification benefits in portfolios – and provide a buffer against inflation through stable income. Commodities and natural resources, including agribusiness, may also act as a portfolio diversifier, and look set to benefit from structural supply-demand imbalances. 

Thank you for joining, and for more, please see our 2023 Outlook and Implementation Guide at the link below.