This is the advice BlackRock ETF investors have when times are tough

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

The past few months have been a rollercoaster ride for Exchange Traded Fund (ETF) investors. The markets fluctuated heavily, but since the beginning of the year there has been a downward trend in some cases so clearly that important indices have already entered Brenmarkt territory. ETF investors also feel this, because index funds traded on the stock exchange map market barometers such as the S&P 500 or the DAX 1:1. If the overall market goes down, ETF investments classified as less risky also go down. But there are ETF products that are 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 portfolio

In a phone interview with MarketWatch, the expert stressed BlackRock’s current preference for funds focused on shorter-dated fixed income securities, as well as equity ETFs that invest in “quality companies with strong balance sheets and pricing power.” Investors would be better able to cope with a slowing economy if they had “a bit of that defensive twist in their portfolio.” She also advises investors to opt for “minimum volatility”.

Higher prices expected for fixed income

In the past few weeks, the markets have faced rising inflation and, in particular, concerns about a much tighter monetary policy the US Federal Reserve lost a lot. However, Chaudhuri does not believe this to be justified: “Ultimately, I think that the Fed will take a less aggressive stance in its policy course than what is currently priced into the market,” said Chaudhuri in the telephone interview. “If that happens,” she said, “front-end rates will likely go down.” That should lead to higher prices for shorter-dated fixed income securities, which would benefit debt holders, particularly when looking at 1-year to 3-year bonds, the expert said.

Fed makes the big rate hike

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

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

But Chaudhuri advises investors to keep an eye on the front end of the yield curve “when the Fed starts quantitative tightening.” As part of quantitative tightening, US currency holders plan to reduce the size of their balance sheets by allowing the bonds they hold to expire at maturity. In the next twelve months, holdings of government bonds are to be reduced by around 700 million dollars. “These government bonds need to find another home and the resulting supply pressure should push yields higher,” the analyst said in an investor note quoted by MarketWatch.

Editorial office finanzen.net

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