“Defensive Twist”: BlackRock ETF Investors in Troubled Times | news

Markets between inflation and recession
BlackRock recommends funds focused on fixed income securities with shorter maturities
Higher prices expected for fixed income

The past few months have been a roller coaster ride for Exchange Traded Fund (ETF) investors. Markets have fluctuated heavily, but since the beginning of the year there has in some cases been a downward trend so evident that important indices have already entered the Brenmarkt territory. ETF investors feel this too, because index funds are traded on the market barometers of stock exchange maps such as the S&P 500 or the 1: 1 DAX. If the overall market falls, investments in ETFs classified as less risky will also fall. But there are ETF products worth looking into, even in the current market environment, believes Gargi Chaudhuri, head of iShares investment strategy at fund giant BlackRock.

Defensive twist in the wallet

In a telephone interview with MarketWatch, the expert highlighted BlackRock’s current preference for funds focused on short-dated fixed-income securities, as well as equity ETFs that invest in “quality companies with solid balance sheets and pricing power. prices “. Investors would be better able to cope with a slowing economy if they had “some of that defensive turn in their portfolios”. He also advises investors to opt for “minimum volatility”.

Higher prices expected for fixed income

In recent weeks, markets have had to cope with rising inflation and, in particular, concerns about a very tight rally. monetary policy the US Federal Reserve has lost a lot. However, Chaudhuri does not believe this is justified: “Ultimately, I think the Fed will take a less aggressive stance in its political course than it is currently priced in the market,” Chaudhuri said in the telephone interview. “If that happens,” he said, “front-end rates are likely to go down.” This should lead to higher prices for short-dated fixed-income securities, which would benefit debt holders, particularly when considering 1- to 3-year bonds, the expert said.

The Fed makes the big rate hike

Indeed, the US Federal Reserve dared to make a sharp hike in interest rates last Wednesday and raised the benchmark interest rate by 0.75 percentage points. Such a step had already been feared in the market and some experts even expected the rate hike by currency holders to be even larger. Fed Chairman Jerome Powell pointed out in the course of the interest rate adjustment that such a high interest rate step is “naturally unusual,” but indicated that another rate hike is also being considered at the end of July. interest of 0.5 or 0.75 percentage points.

Although earlier it appeared that the rate hike had already been priced in, equity markets reacted with a delay, sometimes with massive losses. The DAX lost more than three percent the day after the Fed’s decision, the leading US Dow Jones index fell 2.4 percent, while the NASDAQ Composite tech equity index lost a whopping four percent.

But Chaudhuri advises investors to keep an eye on the forward end of the yield curve “when the Fed begins a quantitative tightening.” As part of the quantitative tightening, US currency holders plan to reduce the size of their balance sheets by allowing the bonds they hold to mature to maturity. Government bond holdings will decline by approximately $ 700 million over the next twelve months. “These government bonds must find another home and the resulting supply pressure should push yields higher,” the analyst said in an investor note cited by MarketWatch. editorial staff

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