Global Perspectives on Responsible Investment | Eva Halvarsson
September 10, 2019
Philip Hodges: The easy money is off the table. We've had a long equity bull market. Bonds have done very well. It's likely that the returns from the equity market, the bond market are lower going forward so investors need to think about what are other sources of risk that they can add to their portfolio? And start building portfolios that have more exposure to those.
Rick Rieder: You’ve got to be really careful in your portfolio how you are diversifying a portfolio, how you manage your liquidity, how you think about how assets will react in unstable environments. And that is a really big deal today in terms of how we think about markets.
James Keenan: The last 30 years have been about boom and bust, from an investment standpoint, as you got late in a cycle, you were always really moving into a far more defensive camp in order to invest after that dislocation or the pullback. The cycles are probably going to be more frequent and more mild to the upside and downside. And so when I think about that, we’re no longer in a boom/bust environment; we’re in an environment where growth is going to be lower, inflation is likely to be lower for a long period of time, and therefore, aggregate returns are probably lower in asset classes over the long term.
Philip Green: I think there is a consensus around the credit cycle and even the economic cycle that we’re in, are in late stages. That’s not so clear to us. I think many investors in the market itself have been talking about we’re in a late cycle for many years now, and the cycle seems to continue on.
Rick Rieder: We spend a lot of time on marginal contribution of risk, with every individual assets, every individual sector. And if you understand that and how every new asset that goes in impacts your risk—you don’t create these massive swings of up, down performance that is just stable over time. Doesn’t mean that you’re the best performance in good markets, but you’re not going to be the worst in bad and you are just going to create consistent good Sharpe ratios, consistent returns for clients.
Philip Green: Believe it or not, volatility, a lot of volatility in prices, market prices, is a good thing for tactical asset allocation because it gives us and other macro investors the opportunity to take advantage of changes in prices. And for us, what we’re looking at is the ratio of how volatile fundamentals are, and we focus on a number of key drivers of asset classes, and its’ really the volatility of fundamental versus the volatility of prices, prices of stocks and bonds, and currencies and such. In the environment we’re in now, the volatility of prices relative to the volatility of fundamentals, both are moving. The volatility of prices is quite a bit higher, and so what that does is it gives us a good opportunity to add value for our clients.
James Keenan: Credit as an asset class adds resiliency and diversification to an overall portfolio. When you think about credit in general, we kind of think about it as a senior equity. At the end of the day, when you invest in sub-investment grade credit, bank loans, high yield bonds, or private credit markets, essentially most of the return you’re going to get is spread risk that is tied toward the health of corporate profits. So, when we look at the aggregate portfolio and we think about adding credit to the long term as opposed to a tactical allocation, we look at an asset class, broadly speaking, that has become largely available now through the growth of the market as banks have reduced their exposure to it, and something that reduces the volatility or exposure to say duration risk or the sensitivity as you get to interest rates in fixed income assets. But also it reduces the volatility or drawdown risk that you might see in your equity portfolio. So from a long term perspective, we really view credit as being a strategic asset in a broadly diversified portfolio.
Philip Hodges: We believe the economy is starting to slow. The easy money of equity bull market is gone. This is really the right time, we believe, to start diversifying portfolios in to exposures that do well in different market environments. So build resilience in to portfolios by including exposure to interest rate risk, or inflation risk, or equality tilt within equities, or a low volatility tilt in equities. These things help to build resilience, but maintain returns of your investment portfolio.
Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.
This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are subject to change. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.
This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, and estimates of yields or returns. No representation is made that any performance presented will be achieved by any BlackRock Funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or any historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein. 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.
The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.
In the U.S., this material is for Institutional use only – not for public distribution.
In Canada, this material is intended for permitted clients only, is for educational purposes only, does not constitute investment advice and should not be construed as a solicitation or offering of units of any fund or other security in any jurisdiction.
In the European Economic Area, it is issued by BlackRock (Netherlands) B.V.: Amstelplein 1, 1096 HA,Amsterdam, Tel: 020 – 549 5200, Trade Register No. 17068311. This material is for distribution to Professional Clients (as defined by MiFID Rules) and Qualified Investors and should not be relied upon by any other persons.
In the United Kingdom and outside the European Economic Area, it is issued by BlackRock Investment Management (UK) Limited, (authorised and regulated by the Financial Conduct Authority (‘FCA’). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England and Wales No. 2020394. Tel: 020 7743 3000. This material is for distribution to Professional Clients (as defined by the FCA or MiFID Rules) and Qualified Investors and should not be relied upon by any other persons.
For qualified investors in Switzerland, this material shall be exclusively made available to, and directed at, qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as amended.
The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.
FOR INSTITUTIONAL, FINANCIAL PROFESSIONAL, PERMITTED CLIENT AND WHOLESALE INVESTOR USE ONLY. THIS MATERIAL IS NOT TO BE REPRODUCED OR DISTRIBUTED TO PERSONS OTHER THAN THE RECIPIENT.
BlackRock® is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.