INVESTMENT IDEAS

Diversify your portfolio with
multi-asset solutions

Building a well-diversified portfolio by investing in different asset classes is essential in today’s ever changing markets. But the fragmented nature of global capital markets can make it challenging to always pick assets which will be proven to be effective diversifiers.

So what can investors do with their money? One solution could be to seek out additional diversification by investing in funds that have a truly flexible approach to asset allocation.

Our expert asset allocators can call on hundreds of BlackRock’s specialist investment teams from all over the world, as well as the firm’s renowned risk management systems, to deliver the outcomes our clients deserve.

Where does multi-asset income fit today?

Over the past few months, we’ve seen many investors begin to take on increased portfolio risk at time when markets have become more fully valued. You can see this in the record amount of inflows into equity funds. We’ve also seen a much less favorable backdrop for a lot of last year’s winners, such as sector specific equities and longer-duration bonds. This underscores the difficulties higher inflation and interest rates can pose on certain markets. As a result, many investors are now gravitating back to strategies that offer broad diversification, flexibility, and consistent income potential.

With that in mind, we see multi-asset income strategies fitting into investor portfolios in three main ways today. First, they are source of compelling income in a world where that is still very difficult to find. Secondly, for investors worried about higher inflation and interest rates eroding the value of their bonds, multi-asset income strategies can offer relatively lower interest rate sensitivty and higher income potential. Lastly, for investors that have become over-concentrated in one equity sector or style, multi-asset income strategies can offer investors a way to reduce portfolio risk and achieve more balanced equity exposure.

Our outlook – economic restart to continue, keeping a close eye on inflation

Accelerated Covid-19 vaccine rollouts have allowed economies to reopen at a faster pace than many initially predicted. This has led to a surge in economic and while we expect the pace of the recovery to moderate, overall economic activity is likely to remain robust.

It’s not all rosy though. Inflation is heating up and much of the world is still fighting off the virus. Given the potential impact on central bank policy and asset prices, keeping a close eye on inflation and virus trends will remain paramount.

Portfolio positioning

Our outlook remains positive for risky asset classes, yet we recognize most markets are no longer cheap and that volatility can quickly reappear. This supports the idea of staying diversified. A couple of areas we like today include dividend paying stocks and higher yielding corporate bonds. Dividend stocks have outperformed in recent months but continue to trade at a discount relative to growth stocks. They also offer the potential for income growth which can act as an important inflation hedge.

Within fixed income, U.S. and Asian high yield continue to offer amongst the highest yields globally and should remain well supported by the global recovery. In contrast, many other bond markets still don’t provide yields above projected inflation and will be more challenged if interest rates move higher. This makes us more cautious on areas like developed government bonds and investment grade corporate bonds.

 

Multi-asset Income Outlook

Zach Bevevino, Director and Product Strategist, explores how multi-asset income strategies can fit into investor portfolios amid inflationary and market rotation concerns.