Persistent headwinds mean investors can no longer set and forget their portfolio: BlackRock

Investors can no longer assume share values will rise over time, the world’s biggest fund manager says, as volatility becomes more specific.

Investors are now facing a completely different market environment to recent decades, according to BlackRock, and cannot assume sharemarket values will rise over time.

The world’s biggest investment manager, with $US8.6 trillion in funds, says macroeconomic and geopolitical shifts have created settings where volatility is increasing and becoming more specific.

Blackrock Investment Institute chief APAC strategist Ben Powell said while a new market regimen would uproot traditional ways of investing, it however presented new opportunities.

“We think the era of set and forgot by just being long and not touching the portfolio is sadly over,” he said.

“It is a more complicated world, and we are going to have to be more dynamic and take positions more frequently as markets are going to be more volatile and more specific.”

“That is being more specific as to what sort of risk we want to risk in the portfolio, than just being risk on or risk off.”

Mr Powell said it will be harder work for investors, but they should not be overly concerned as the new “regime” will only present new opportunities to exploit.

“The key focus for us at the moment is how we as investors change our process and adjust to this new context and new macro, investment, political regimen in order to be on the right side of as many of these opportunities as we can,” he said.

With the global central banks have embarked on some of the most aggressive interest rates on record in a bid to tame inflation and a growing view that rates will be higher for longer, BlackRock was of the view that equities were no longer in an environment where every stock was likely to go up over time, but that investors would now need to be proactive about their choices.

BlackRock expects market volatility to remain for some time because of supply constraints including demographic shifts, as well as the transition away from fossil fuels and the evolution of globalisation.

This was likely to mean that a situation in which stocks are likely to just go up over time no longer existed, meaning that investors would need to be more proactive about where they invest.

“People talk about deglobalisation, but we don’t think that is quite right and see it as globalisation rewired, because as you are seeing with BRICS is different dissociating supply chains and even capital markets, driven mostly for political reasons,” Mr Powell said.

“This is likely to result in less efficiency and probably means inflation is going to hang around.”

While inflation had come down from very high levels from a year ago, Mr Powell said that central banks were fully aware that the fight was not done and that it would be potentially a mistake to declare victory.

“If central banks pivot too soon or turn dovish, and it turns out that inflation is a problem, and they have to lift again, then it will be economically, socially and credibility damaging,” he said.

“We think central banks are aware of this and as a result are going to hold tight on rates for some time.”

Artificial intelligence was an emerging trend BlackRock saw as offering potential for investors to take advantage of in the new market environment.

“In a world where rates are a bit higher because inflation is too high then we need to pivot to new opportunities and an example of this is mega forces like artificial intelligence which we think has more room to run,” Mr Powell said.

“This harnessing of mega forces is an example of how we pivot to new opportunities — which in the case of AI we think has more room to run.”