iShares Midyear 2022 Investor Guide

Highlights Sep.05,2022 21:13

We have entered a new regime marked by high volatility, inflation, and uncertainty. The Great Moderation — a period of low inflation and stable economic growth that began in the mid-1980s — has come to end. The new regime, ushered in by pandemic scars and geopolitical conflict, will have many implications, not least of which is increased demand for more nimble investment tools. ETFs will be key in this transition.

We identify three investment themes that will be paramount for the remainder of 2022:

Embracing volatility — As central bankers around the globe seek to balance sticky inflation with slowing growth, risk premia is on the rise. We believe defensive positions make most sense as minimizing drawdowns may be the new way to beat a benchmark. We prefer minimum volatility exposures, dividend strategies, and limiting duration.

Living with sustained inflation — Cyclical drivers of inflation will fade as higher interest rates take their toll, but structural factors mean it will stay higher for longer. That argues for inflation-linked over nominal bonds and getting granular with sub-sectors that exhibit the highest pricing power, such as pharmaceuticals. The emerging trend of “friendshoring” will be a boon for countries that are more geographically and politically aligned with major powers, such as Mexico and Brazil.

The long-term impacts of shortages — The global economy is grappling with commodity induced volatility that we haven’t seen in decades. From gasoline prices in the U.S. to food inflation globally, it doesn’t take much to see and feel the real economic impact. We believe there are near term opportunities in the energy and agriculture sectors, and longer term solutions in thematic exposures like clean energy and the future of food.
In this investment guide, we pair macroeconomic views and market positioning insights to identify potential investment opportunities using ETFs.