Connect with us

Business

Where BlackRock sees ‘tremendous’ market opportunities for ETF investors in 2023 after damage to stocks, bonds

News Agencies

Published

on

Hello! In this week’s ETF Wrap, BlackRock’s Gargi Chaudhuri, head of iShares investment strategy for the Americas, discusses ways for investors to play a world of higher rates and elevated inflation in 2023.

Please send feedback and tips to christine.idzelis@marketwatch.com. You can also follow me on Twitter at @cidzelis and find me on LinkedIn.

As investors assess the damage inflicted on asset prices by rising interest rates in 2022, an environment of higher rates should favor value-style equities in 2023, while bonds offer “tremendous” opportunities for income, according to BlackRock’s Gargi Chaudhuri, head of iShares investment strategy for the Americas.

Advertisement

“We probably have not seen the bottom in the equity market yet,” Chaudhuri said in a phone interview. “Historically, whenever you thought of buying the dip, you thought of buying tech.”

So, the notion that value stocks may outperform next year is “a departure from a decade of growth leadership,” according to a note Wednesday from Chaudhuri that provides investors a guide to 2023. As investors consider the impact of the Federal Reserve’s rate hikes on the stock market, and potentially allocating more to equities, value stocks are an area that should fare relatively well, she said by phone.

Investors might consider the iShares Russell 1000 Value ETF
IWD
and iShares MSCI USA Value Factor ETF
VLUE
as options, Chaudhuri suggested.

Advertisement

“We have moved away from a world of low-to-negative real rates to a world of higher rates,” she said. Investors should think about “what parts of the equity market are going to thrive in a positive and sustained higher-rate regime, and that actually points to value.”

At this point, it seems unlikely that the Fed will over the next three to six months “suddenly turn around and start cutting rates,” she said. The central bank has been aggressively raising rates to combat high inflation, hikes that some investors worry could tip the U.S. into a recession.

Small-cap stocks?

While Chaudhuri currently anticipates that a recession is likely in 2023, she said that investors who believe that the Fed may “engineer a soft landing” for the U.S. economy might consider buying small-cap equities rather than growth stocks in a regime of higher rates.

Advertisement

She pointed to the iShares Core S&P Small-Cap ETF
IJR
as an option. Shares of the ETF are down 11.1% this year through November, according to FactSet data. That compares with a 14.4% drop over the same period for the S&P 500 index, which Chaudhuri described as “very heavily oriented toward technology companies.”

‘Rethinking’ bonds

Investors should consider “rethinking the role of bonds” in their investment portfolios in 2023, according to Chaudhuri’s note, which cited the iShares 1-3 Year Treasury Bond ETF
SHY,
iShares 1-5 Year Investment Grade Corporate Bond ETF
IGSB
and iShares MBS ETF
MBB
as potential buying opportunities.

Like stocks, bonds have been hurt by rising rates in 2022.

Advertisement

“The repricing of yields and the return of income has really created a tremendous, absolutely extraordinary opportunity in the bond market,” Chaudhuri said by phone. “Investors have to rethink the role of bonds in their portfolio as a result of income.”

For example, investors may now be able to allocate more of their portfolio to fixed income to achieve a 6.5% yield compared with 2015, a chart in her note shows.

Advertisement

BLACKROCK’S ISHARES 2023 YEAR-AHEAD INVESTOR GUIDE DATED NOV. 30, 2022

In 2015, investors had to go “a lot further out in the risk spectrum” for a 6.5% yield, potentially by owning more junk bonds or equities, she said by phone.

Elevated inflation

As for the surge in the cost of living of this year, BlackRock expects that it’s unlikely that core inflation will fall back to pre-pandemic levels of below 2%, even if it eases.

As investors adjust to “living with inflation,” Chaudhuri indicated in her note that the iShares TIPS Bond ETF
TIP
and iShares U.S. Infrastructure ETF
IFRA
may provide exposure to equities that historically are “attractive in a higher inflationary regime.” She also cited the iShares MSCI Global Agriculture Producers ETF
VEGI
as an investment option amid elevated inflation.

Advertisement

As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good…
Top Performers %Performance
KraneShares CSI China Internet ETF
KWEB
13.2
iShares China Large-Cap ETF
FXI
9.3
WisdomTree China ex-State-Owned Enterprises Fund
CXSE
8.8
EMQQ The Emerging Markets Internet & Ecommerce ETF
EMQQ
8.5
iShares MSCI China ETF
MCHI
8.4
Source: FactSet data through Wednesday, Nov. 30, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater
…and the bad
Bottom Performers %Performance
United States Natural Gas Fund LP
UNG
-9.7
First Trust Nasdaq Oil & Gas ETF
FTXN
-2.5
Alerian MLP ETF
AMLP
-1.9
iShares U.S. Oil & Gas Exploration & Production ETF
IEO
-1.7
SPDR S&P Oil & Gas Exploration & Production ETF
XOP
-1.6
Source: FactSet
Weekly ETF reads
Continue Reading
Advertisement

Advertisement

Breaking News

Editor Pick’s

Latest Entertainment

Entertainment1 hour ago

Feminist Jane Fonda once ‘saw women as weak’

Jane Fonda is opening up about her cancer treatment. (Photo: REUTERS/Mario Anzuoni) Jane Fonda has been an outspoken feminist for...

Entertainment3 hours ago

‘A Thousand and One’ wins Sundance grand jury prize

“A Thousand and One,” a drama about an impoverished single mother and her son in New York City, won the...

Entertainment4 hours ago

T.J. Holmes and Amy Robach will depart ‘GMA3’ amid romance: sources

ABC is looking to cut ties with Amy Robach and T.J. Holmes amid their headline-making romance. (Photos: Getty Images) After...

Entertainment4 hours ago

‘Infinity Pool’ stars Mia Goth and Alexander Skarsgård on the bonkers X-rated scenes that shocked Sundance

Mia Goth takes aim in Brandon Cronenberg’s dark horror satire Infinity Pool. (Photo: Neon/Courtesy Everett Collection) Like father, like son....

Entertainment5 hours ago

The Last of Us officially renewed for season 2, and gamers know what that means

We haven’t heard the last of The Last of Us. HBO has officially renewed the post-apocalyptic drama starring Pedro Pascal...

Entertainment5 hours ago

Jay Leno’s very bad week: He breaks several bones in motorcycle crash as CNBC cancels ‘Jay Leno’s Garage’

Jay Leno broke his ribs in a motorcycle accident; days later, CNBC announced it canceled the late night legend’s show...

Entertainment6 hours ago

‘Shrinking’ star Jason Segel never thought mental illness was stigmatized: ‘I’ve asked for help so many times in my life’

Jason Segel in Shrinking (Photo: Apple TV+) Jason Segel readily admits he gets typecast for a very specific role: “Your...

Entertainment7 hours ago

Taylor Swift casts trans model in ‘Lavender Haze’ music video: ‘Thank you for being an ally’

We met her at midnight, and she didn’t disappoint. Taylor Swift released a music video for “Lavender Haze” on Friday,...

Advertisement

Latest Sports

Sports46 mins ago

NFL Would You Rather? Which home favorite would you rather bet?

Breaking down the NFL's two conference championship games.

Sports1 hour ago

Nick Bosa receives perfect one-word assessment from Eagles’ Jordan Mailata

The Eagles know what to expect from Nick Bosa and the 49ers' defense on Sunday in the NFC Championship Game...

Sports2 hours ago

Kyle Shanahan’s Brock Purdy anecdote sums up 49ers’ rookie philosophy

Brock Purdy is the 49ers' perfect example of how rookies should approach their first year in the NFL.

Sports2 hours ago

Statement from Steve Wilks’ lawyer is also a warning to the Cardinals on Brian Flores

The statement came swiftly from lawyer Doug Wigdor. And it should be regarded by Cardinals owner Michael Bidwill as a...

Sports3 hours ago

NFL Conference Championship Stats Notebook: One key matchup will determine the winner of 49ers-Eagles

Fantasy football analyst Matt Harmon breaks down four noteworthy numbers ahead of the NFL championship round.

Sports3 hours ago

Warren Sapp says Bears are trading Justin Fields to draft Bryce Young

How on earth would Warren Sapp know if the Chicago Bears are trading Justin Fields?

Sports4 hours ago

NBA second generation: Boozer twins, Bronny James and others carving their own paths

Yahoo Sports takes a look at 10 current high school players who come from an NBA family and how they're...

Sports4 hours ago

Report: Warriors could lose GM Bob Myers; add front office uncertainty to growing list of woes

The Wizards, Suns, Knicks and Clippers are reportedly teams worth monitoring as the former NBA Executive of the Year explores...

Technology Hot News

Technology1 week ago

Led by "Amazon" and "Microsoft" .. the technology giants are planning to lay off 64,000 employees

After 10 years of driving the stock market bull run, big tech companies are racing to downsize staff to adapt...

Technology1 week ago

Apple introduces MacBooks with new M2 processors

Yesterday, Tuesday, Apple unveiled MacBooks powered by the new, faster “M2 Pro” and “M2 Max” processor chips, in a surprise...

Technology1 week ago

All you need to know about the upcoming Galaxy S23 phones from Samsung

Samsung has officially announced that the (Galaxy Unpacked 2023) event will be held this year on Wednesday, February 1, which...

Technology1 week ago

FTX Exchange Announces Hacking and Stolen $415 Million in Cryptocurrency

Bankrupt American cryptocurrency firm FTX announced today, Wednesday, that $415 million in cryptocurrency has been hacked and stolen from the...

Technology1 week ago

Because of a "fraudulent tweet"… Elon Musk's trial begins

Elon Musk's trial began Tuesday in San Francisco with the selection of jury members who will have to decide whether...

Technology1 week ago

An electric spoon replaces salt and spices, but with conditions

Experts have developed an electric spoon that is able to replace spices and flavors and affect the taste buds in...

Technology2 weeks ago

The biggest dangers of using tracking devices.. so you can escape?

If you spot an unknown Bluetooth tagging device, there are ways to disable the device so it can't track your...

Technology2 weeks ago

New Twitter.. For You tab to web version

The Twitter platform announced that it will bring the new tab (For You), which launched last Tuesday for iPhones and...

Advertisement