BlackRock Is Changing Up Its Investment Mix

Multinational investment houses with $8.5 trillion under management are just like us. Well, in some ways, maybe. Every few months, they look back at where they’ve invested, see where they’ve scored, spot their missed opportunities (patting themselves on the back or kicking themselves as needed), and then adjust.

BlackRock did that recently and is making a few interesting adjustments – going bigger on AI stocks and Japanese stocks, for a start. Let’s take a look at the changes it’s making…

What’s BlackRock saying about AI?

BlackRock sees a multi-country and multi-sector AI-centered investment cycle beginning and says it’s going to rocket sharply higher. And that’s why it’s adopting an overweight position on the AI mega theme.

AI Market Size Estimate

Now, asset managers don’t get much bigger than BlackRock, and so its investing moves are closely watched by the market. If you think its view on AI makes sense, you could consider taking advantage of the recent pullback in key AI-related stocks like Nvidia and Advanced Micro Devices or buying the Nasdaq tracking Invesco QQQ Trust Series ETF (ticker: QQQ; expense ratio: 0.2%) for more broad-based AI and tech exposure.

BlackRock is Bullish on Japan

BlackRock’s other big change is geographical. It’s shifting its developed markets stock allocation to adopt an overweight position on Japanese shares.

And it’s got a few key reasons for that: there have been accelerating stock buybacks and other shareholder-friendly corporate reforms, companies are seeing strong earnings, and the Bank of Japan is still carrying on with accommodative monetary policy (think: negative interest rates).

These charts show the increase in the size of share buybacks and dividends, left, and the strong, upward earnings revisions, right, which have helped boost Japan’s Topix stock index by a pretty punchy 19% so far this year.

But there’s one issue with investing in Japan, which is the depreciating Japanese yen. The country’s currency is down 13% against the USD and 11% against the Euro.

BlackRock is Underweight U.S. stocks

BlackRock moved to an underweight position in US stocks primarily because of concerns about growth. That said, the US is still its heftiest portfolio allocation.

But a lot of the firm’s focus right now is on bonds. Persistent inflationary pressures, much of it driven by supply constraints, have caused bond yields to surge to 16-year highs.

BlackRock sees central banks keeping monetary policy tight – keeping interest rates high – to try to keep a lid on inflation.

You can see the shift higher in bond yields in the US, UK, and Germany. BlackRock explains the changes in interest rate expectations have offered multiple income opportunities. It is overweight on UK and European government bonds, with yields fattening toward multi-year highs.

In the US, BlackRock says short-dated government bonds yielding 5% look particularly attractive for income, especially relative to investment-grade (or high-quality corporate) bonds, which offer slightly higher yields for much more risk.

And lastly, BlackRock also sees some juicy income opportunities in private credit as bank credit becomes less and less available.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.