Blackrock ups ‘pro-risk’ strategy, upgrades equities on hope of stronger growth, lower real yields

The new year 2021 will not just be a change of calendars on your wall but it will also be a year where the world will see transformations across sustainability, inequality, geopolitics and macro policy, according to global investment management firm Blackrock’s investment institute. Expecting a ‘new investment order’ in 2021, Blackrock is increasing its ‘pro-risk’ stance by upgrading equities. “The new nominal, Globalization rewired and Turbocharged transformations. The new investment order is still evolving, and investors will need to adapt. Yet the features are becoming clear, and we believe this calls for a fundamental rethink of portfolio allocations — starting now,” Blackrock said.

Pro-risk approach

With upgrading equities, the investment manager calls for a sectoral approach. “We like tech and healthcare due to the pandemic’s transformative shifts. We balance this with a preference for prime potential beneficiaries of the economic restart, such as emerging market (EM) equities and U.S. small caps,” the report said. Analysts at Blackrock said that the traditional business cycle does not apply to the pandemic. However, a swift recovery can be helped by vaccines that can aid economic restart and re-accelerate 2021 as pent-up demand is unleashed. 

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In 2021, a stronger bounce back for the global economy is expected with lower real yields even as inflation climbs. Keeping this in mind, the report added that Blackrock moves government bonds to underweight and see equities supported by falling real rates. 

Where to invest

Using a bottom-up approach, the global investment firm has grouped sectors into three categories — those in trouble that may fall further; those that are hurt but should recover; and strong companies getting even stronger. In the first bucket, Airlines have been packed as business travels may recover slowly than leisure. Housing, materials and autos fall in the second bucket. “Most were hit hard in the initial market selloff, but they have been among the biggest market surprises as the interest-rate-sensitive parts of the U.S. economy came roaring back,” Blackrock said.

The third category includes technology firms. “Tech is in the third category, and we see it maintaining its strengths: leveraging accelerated trends and offering scarce growth amid rock-bottom yields. The sector boasts the highest profit margins in the global equity universe,” they added.