BlackRock, the world’s largest asset manager, is calling investors to return to risk assets, particularly international equities, in the second half of the year.
The ETF issuer under the iShares brand, which commands more than $1.1 trillion in U.S. ETF assets alone—or about a third of the U.S. ETF market—said in its midyear outlook that there are three major themes driving markets in months ahead. Chief among them: 1) an ongoing and sustained global expansion; 2) the current environment is rewarding risk; and 3) volatility remains low.
According to Richard Turnill, BlackRock's global chief investment strategist, these themes should bode well for risk assets going forward, particularly because international equities are poised to outpace U.S. stock returns.
US No Longer Driving Returns
If you look at the performance of a U.S. stock ETF such as the SPDR S&P 500 (SPY) relative to the Vanguard FTSE All-World ex-US ETF (VEU) and the iShares MSCI Emerging Markets ETF (EEM) year-to-date, it’s clear that the U.S. market is no longer driving equity returns this year. That’s a notable change from as recently as 2016, when SPY outperformed both VEU and EEM significantly.
Global growth has settled at an “above-trend rate,” and should stay above 2% and above market consensus based on BlackRock’s proprietary metrics, Turnill says. That growth is all-inclusive—it reaches all major regions such as emerging markets and Europe, which had long been an underperformer and where growth is now at its highest level since 2011.
As Turnill put it, this isn’t just ongoing, sustained global growth, it’s “synchronized.”
“The typical length of expansions is eight years, so many investors think we are due for a recession, for the cycle to die of old age,” he said. “But cycles die because imbalances build up, and while this has been a long expansion, it has also been a weak, slow one. We are still somewhere in middle of a long cycle.”