Global Allocation Insight

How to find growth in the market today

November 12, 2020

The new political landscape offers opportunities
for investors who adapt their strategy.

Global stocks declined for the second consecutive month in October amid a resurgence in COVID cases across Europe and the United States, deflated hopes for a second round of U.S. fiscal stimulus and increasing uncertainty heading into the U.S. election.

Stock markets rallied back in early November, driven by a combination of progress toward a vaccine and the likely election outcome of a divided government – a scenario that many investors view positively as it reduces the chance of radical policy shifts.

A divided government is also likely to result in a smaller fiscal stimulus package than initially expected under a democratic sweep scenario. A more moderate amount of stimulus would support a low-growth environment going forward, which generally favors high-quality growth companies with the ability to generate consistent earnings.

The fact that some of the high-flying mega-cap growth names have slowed after an epic run does not come as a surprise. Nor does it suggest that the growth rally is done. But it does imply that investors are increasingly searching for high quality companies for which the valuation is in sync with its earnings – an investment style often referred to as “Growth at a Reasonable Price,” or “GARP.”

Investors can employ the GARP strategy by focusing on companies with a valuation that is inline, or better yet, cheap, relative to earnings growth, which can be measured by the price/earnings-to-growth or “PEG” ratio. Using this metric, a couple of themes emerge:

Bullet 1

Go global. While most of the top earnings-growers on an absolute basis are domiciled in the United States, this does not necessarily hold true when growth is adjusted by valuation. In fact, on a PEG basis, the best scoring companies are evenly distributed across developed markets and emerging markets in Asia.

Bullet 2

Look beyond the tech sector. Software, semiconductors and IT services have been revered for their earnings strength. But the list of companies with attractive PEG ratios is not overly tech-centric. Several cyclical industries, notably transportation, chemicals and construction, are also well represented.

We believe risk assets will continue to be supported through year end given the healthy macro backdrop created by previous stimulus, the continuation of low interest rates, strong household balance sheets, low inventory levels, corporate resilience, and improving prospects for one or more effective vaccines.

In consideration of this outlook, the BlackRock Global Allocation Fund holds an equity overweight with an emphasis on high-quality, innovative companies that can generate consistent cash flows. Over the past several months, we have taken profits in some of our mega-cap technology holdings and added to positions in select cyclical industries such as rails, specialty chemicals, semiconductors and housing-related segments. We look for companies that can benefit from a stabilizing economy, but do not require a sharp upturn in economic activity as a catalyst.

View fund commentary

Interested in our models? Click here for more information about GA Selects and the latest trade update.

Rick Rieder
Rick Rieder
Chief Investment Officer of Global Fixed Income and Head of the Global Allocation Team
Russ Koesterich, CFA, JD
Russ Koesterich, CFA, JD
Portfolio Manager,
BlackRock Global Allocation Team
Russ Koesterich, CFA, JD, Managing Director and portfolio manager, is a member of the Global Allocation team.   Mr. Koesterich's service with the firm dates back to 2005, ...
David Clayton, CFA, JD
David Clayton, CFA, JD
Portfolio Manager,
BlackRock Global Allocation Team
David Clayton, CFA, JD, Managing Director and portfolio manager, is a member of the Global Allocation team.   Mr. Clayton joined the BlackRock Global Allocation team in ...
Kate Moore
Kate Moore
Head of Thematic Strategy,
BlackRock Global Allocation Team
Kate Moore, Managing Director, is a member of the Global Allocation investment team and Head of Thematic Strategy. Her investment mandate includes identifying ...

Global Allocation Resources

Chart: Global Allocation - providing record of growing assets
A new way to experience performance
See how the Global Allocation Fund has outperformed global stocks with one-third less volatility.*
Chart: Global Allocation Challenge
Global Allocation Special Commentary
Managing through the present while investing for the future.
Global Allocation Monthly Insights
Subscribe to get timely market outlooks and portfolio positioning insights every month.

For Financial Professionals Only.
Subscribe now Subscribe now
Global Allocation Monthly Insights subscription