The old investing regime has given way to a new one that will require “nimble and frequent” portfolio adjustments, and exchange-traded funds can be a key tool to help investors navigate it, according to Gargi Pal Chaudhuri, managing director and head of iShares investment strategy, Americas at BlackRock.
Ms. Chaudhuri’s comments came during a BlackRock Investment Institute 2023 Outlook media briefing in New York on Wednesday. During the past 15 years, accommodative central bank monetary policy encouraged investors to add risk in pursuit of yield, according to the iShares 2023 Year-Ahead Investor Guide, released Wednesday.
The long period of low, stable rates led to a shift away from fixed income and toward high-growth equities, the investor guide said. Now, BlackRock believes that the “lower rates for longer” regime has shifted to one of “higher rates for longer.” When it comes to portfolio construction, that shift has “profound” implications, the guide said. After living for more than a decade in the TINA, or there-is-no-alternative world, we have moved to a time when “bonds are back,” Ms. Chaudhuri said.
According to the investor guide, with yields at levels not seen since the days of the global financial crisis of 2007 to 2009, the front end of the curve in both nominal U.S. Treasuries and investment-grade credit offers investors the potential for attractive total returns.
“The need to be nimble is very crucial because this is a smaller cycle,” added Ms. Chaudhuri, who cautioned against expecting this cycle to be like previous ones, which were much longer.
Investors should “get ready to move around rapidly,” she said, adding that the use of ETFs can really help investors with that.