'Not a time to be greedy, over-stretch for yield'

Although BlackRock has downgraded its three-month view on global equities to neutral, Mr Fredericks says there is still value in regional stocks if they are approached with a long-term view.
Although BlackRock has downgraded its three-month view on global equities to neutral, Mr Fredericks says there is still value in regional stocks if they are approached with a long-term view.ST FILE PHOTO

BlackRock exec says investors should stay cautious amid slowdown, low interest rates

Investors should exercise caution in the coming months, given the economic slowdown and low interest rates globally, especially if they want to generate stable income, according to a senior BlackRock executive.

Mr Michael Fredericks, the investment giant's head of income investing for the multi-asset strategies group, told The Sunday Times: "This is not a time to be greedy, not a time to be over-stretching for yield, because I think there can be some really negative consequences.

"Instead, now is the time to recognise that the global economy remains a world with very low rates of growth and low interest rates."

Mr Fredericks manages Black- Rock's global multi-asset income fund, which counts Singapore as its second-biggest market after the United States. An income fund aims to produce steady returns with minimal exposure to volatility.

BlackRock is the world's biggest asset management firm with US$4.7 trillion (S$6.4 trillion) of assets under management.

"We think the rates will stay low for a long time in developed markets. So the need for income will remain at a high level, but the issue for investors is that the potential market upside is lower than four or five years ago," Mr Fredericks said.

Even with another rate hike by the Federal Reserve this month, US interest rates will still be near multi-year lows. Elsewhere, central banks in Europe, Japan and Australia have all cut rates.

Persistently low rates typically mean low yields from fixed-income products such as bonds.

BlackRock global chief investment strategist Richard Turnill said in a note last week that now is also "a time for caution" in the global stock markets.

"Stocks overall appear more vulnerable to short-term risks. These include a Fed that increases rates too aggressively, a Brexit, a worsening European immigration crisis and a slowdown in global growth.

"We also see less upside to China's growth expectations after a recent uptick in activity," Mr Turnill said.

BlackRock has downgraded its three-month view on global equities to neutral, which is also its stance on equities in Japan and the rest of Asia. But there is still value to be had from regional stocks, provided they are approached with a long-term view, Mr Fredericks said.

"What stands out is the valuation, which in emerging Asia is still very attractive compared with developed markets," he said.

"Sentiment around Asian equities is also generally weak, which is a positive because when a viewpoint becomes consensus, usually it's time to take the other side.

"So I like the fact that long Asian equities is not a consensus view, hence the market is cheap. There is some real appeal here, not necessarily for an income investor, but definitely for those seeking price appreciation and total return."

A version of this article appeared in the print edition of The Sunday Times on June 05, 2016, with the headline ''Not a time to be greedy, over-stretch for yield''. Print Edition | Subscribe