In the next episode of ASB’s Investment Insight Series, we look at issues that investors are grappling with – in New Zealand and around the world.
The resilience of investment portfolios should be driving investors' thought processes, according to a leading investment strategist for the world's largest asset manager.
Ben Powell, APAC Chief Investment Strategist for BlackRock Investment Institute, based in Singapore, says there is one key question all investors have to consider: Does your portfolio make sense for your individual goals?
"Those goals can be trying to retire with dignity, funding kids through college – whatever it might be. We need to have a portfolio set up to be resilient to the downside surprises because they will definitely keep coming and they're hard to predict exactly where and exactly when.
"The game, at least for us at BlackRock, isn't trying to forecast each of those individually; it's to have a portfolio which is sufficiently diversified by asset class, by geography and so forth to be resilient –giving us the best chance of achieving those outcomes that we're all aiming for."
Powell was being interviewed by Chris Tennent-Brown, ASB Wealth's Senior Economist, part of a series delving into what current market conditions mean for investors and the outlook for 2022. Their whole conversation can be seen in the accompanying video.
While investors have had plenty to be concerned about of late – like Covid-19 developments, global logistics challenges, US politics, and China's property market – Powell was cautious about the potential effects of inflation but more upbeat about the performance of the world's sharemarkets.
The US sharemarket, for example, surprised with fresh all time highs in November and Powell says that is due to a strong financial "tail wind".
"Companies in the US, in particular, are making a lot of money and a lot more profit than expected even just a few months ago," he says. "We've seen earnings do very well, forward earnings expectations continue to be revised up including through 2022 and, of course, that's provided a very strong tail wind for US and some global equities as well.
"We at BlackRock think that can continue. This very good environment for companies as we move from Covid restrictions 'on' to restrictions 'off' is allowing companies to return to something like normal operations and they're doing pretty well.
"That earnings tail wind we think is the key reason why global and US equities have done well and we think can continue to do well."
However, he felt there was also a strong sense that inflation would "hang around" longer than previously thought: "What we've seen therefore is interest rates have gone up and the market has become more worried that central banks will be more aggressive in their path of future rates hikes over the next year or two.
"That means bond prices will go down, so what we've been seeing over the last several weeks is global bond prices under-performing a bit as a result of those higher interest rates, a consequence of fears about higher inflation."
For more investment insights, market updates and information on how to access free KiwiSaver advice from ASB visit asb.co.nz/investor-hub.
These are entirely ASB's own views, not investment advice. However, there are plenty of experts at ASB qualified to give personalised advice.