A vote of confidence for income investing

November 13, 2020

Navigating short-term risks is paramount, but we view the backdrop
as favorable for income investors over the medium term.

Global developed equities fell for a second consecutive month as a resurgence in virus cases and uncertainty around the U.S. election made investors more cautious. Waning hope for additional U.S. fiscal stimulus in the near term also weighed on sentiment.

In contrast, continued strengthening in the Chinese economy led to outperformance in emerging market stocks. Credit markets also held in well, posting marginally positive returns for the month.

We saw further evidence that the global economy has rebounded faster than most investors expected, with record third-quarter gross domestic product (GDP) growth rates and relatively robust company earnings. That said, earnings are still below pre-COVID levels in most instances and the upward growth trend is at risk of reversing as governments in key markets seek to contain another wave of the virus, most notably in Europe. The United States has also reported record-high daily new cases over the past month.

On the positive side, death and hospitalization rates remain well below the peaks seen earlier in the year. Additionally, progress continues to be made on potential vaccines, with a viable option broadly expected by the first quarter of next year.

As for the election, at the time of this writing many questions remain, but we favor taking advantage of any selloffs in risk assets.

Ultimately, we believe election and virus risks will fade but massive global stimulus will remain. In the BlackRock Multi-Asset Income Fund, we have increased exposure to dividend-paying, emerging market and U.S. small cap stocks. These areas have underperformed in the recovery, and thus may have further upside moving forward.

We also reduced exposure to European stocks and added slightly to our cash position to prepare for any dislocations brought about by the election. Lastly, we shifted the fund’s duration exposure (interest rate risk) from the long end to the middle of the yield curve as the prospect of more fiscal stimulus could push up longer-term rates. Overall, navigating short-term risks is paramount, but we view the backdrop as favorable for income investors over the medium term.

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Michael Fredericks
Michael Fredericks
Head of Income Investing for BlackRock Multi-Asset Strategies Team
Michael Fredericks, Managing Director, is head of Income Investing for the Blackrock Multi-Asset Strategies group and lead portfolio manager for the Multi-Asset Income, ...