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2020 Global Outlook

Resilience rules

Our preference for U.S. Treasuries and Treasury Inflation-Protected Securities as portfolio ballast worked during the equity selloff. The moves confirmed that some developed market bonds offer less diversification with yields near levels we consider to be their lower bounds. But the sharp drop in Treasury yields also raises the risk of a snapback.

Implication: We still prefer U.S. Treasuries over lower-yielding peers as portfolio ballast but see risks of a diminishing buffer.

We still like quality
Equity style factor performance, October 2019-March 2020

Equity style factor performance, October 2019-March 2020
  • Source

    Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from Refinitiv Datastream, March 2020. Notes: The bars show risk-adjusted returns of MSCI World Momentum, Quality, Minimum volatility and Value indexes from Oct.1, 2019 to Jan. 17, 2020, and from Jan. 20 (when China confirmed that the coronavirus could spread from person to person) to March 16. We used the MSCI World Index as the benchmark in this analysis. The risk-adjusted returns are calculated by subtracting a factor index’s return for a given period from the total return of the benchmark, then dividing that result by the tracking error, or the standard deviation of the difference between individual index and benchmark returns.

  • The valuations of developed government bonds look stretched in light of our economic outlook, but we still see them providing diversification – albeit less so with some yields near levels we consider to be their lower bounds.
  • Our preference for U.S. Treasuries and Treasury Inflation-Protected Securities as portfolio ballast mostly worked in the virus-related equity volatility, aside from a few days when stocks and bonds both declined in the market stress.
  • We like quality equities as a source of resilience in equity allocations. Quality has been a solid performer amid the market selloff, significantly outperforming value, as the chart above shows.
  • A focus on sustainability can help make portfolios more resilient. We believe the adoption of sustainable investing is a new phenomenon that will carry a return advantage over years and decades. See Sustainability: The tectonic shift in investing.
  • Geopolitical tensions remain high in the Middle East, and we believe markets are underestimating cyber security risks ahead of the U.S. election. See our geopolitical risk dashboard.

Bottom line: We prefer U.S. Treasuries to lower-yielding peers as portfolio ballast and see a strong case for integrating sustainability into investment processes.

Meet the authors
Philipp Hildebrand
Vice Chairman
Philipp Hildebrand, Vice Chairman of BlackRock, is a member of the firm's Global Executive Committee. He is also Chairman of the Financial Markets Advisory (FMA
Jean Boivin
Head of BlackRock Investment Institute
Jean Boivin, PhD, Managing Director, is the Head of the BlackRock Investment Institute (BII). The institute leverages BlackRock’s expertise and produces proprietary ...
Elga Bartsch
Head of Macro Research, BlackRock Investment Institute
Elga Bartsch, PhD, Managing Director, heads up economic and markets research at the Blackrock Investment Institute (BII). BII provides connectivity between BlackRock's ...
Mike Pyle
Chief Investment Strategist, BlackRock Investment Institute
Mike Pyle, CFA, Managing Director, is Global Chief Investment Strategist for BlackRock, leading the Investment Strategy function within the BlackRock Investment Institute ...
Scott Thiel
Chief Fixed Income Strategist, BlackRock Investment Institute
Scott Thiel, Managing Director, is Chief Fixed Income Strategist for BlackRock and a member of the BlackRock Investment Institute (BII). He is responsible for developing ...