Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Key points
01
Opportunities from stock market dispersion
Macroeconomic turbulence is widening the gap between the winners and the losers – and creating attractive valuation opportunities for investors
02
A balance between defensives and cyclicals
We believe it’s sensible to position cautiously in portfolios, with a mix of quality, defensive stocks, and cyclical stocks where valuations may be reflecting a deeper recession that we think likely
03
Healthcare: a sector for all scenarios
Healthcare remains a favored sector across our global Fundamental Equities platform and, we believe, offers an attractive mix of stability and opportunity.
An exciting time for stock pickers
At BlackRock Fundamental Equities, we believe that European equity returns may flatten out over the rest of the year as the impact of higher interest rates filters through to economies.
However, there are two reasons why equity investors should remain positive. First, even if economies shrink, we believe recessions may be shallower than we saw after the Great Financial Crisis, with nominal growth – which does not adjust for inflation – above zero. We believe this can be a supportive environment for equities.
Second, we expect slowing growth and sticky inflation to bring greater dispersion between companies. The chart shows how the gap between winners and losers has widened since the era of rock-bottom rates ended. This presents opportunities for active stock pickers to generate attractive returns – even if the market overall remains flat.
An active playbook for an uncertain economy
Source: Refinitiv DataStream, MSCI. The chart shows the MSCI Quality Index relative to MSCI World Index. An increase in the index means quality is outperforming the broader market. Index rebased to 100. The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.
The investor’s recession dilemma
We believe rapid interest rate rises could tip economies into recession. Yet we are not seeing much weakness among consumers, and European earnings forecasts are being revised higher
Deciding among defensives
One area we are exploring for defensive stocks: those companies that can take advantage of both inflation and disinflation to keep prices high while their costs fall
Seizing on cyclical opportunities
We see opportunities among both consumer and industrial cyclicals, especially where the lagged effect of COVID-related supply disruption is upending the historical recession playbook
Diversification within healthcare
Healthcare offers defensive companies that are well positioned to generate cash even as economies slow, as well as companies that are more innovative and cyclical in nature
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Risk warnings
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
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