The world’s largest wealth manager is viewing the increasing uncertainty related to tariff costs as an opportunity to earn alpha or above-benchmark returns.
In its latest weekly market commentary, BlackRock declared that now is “a great time for alpha”, noting that there are two ways to capture it – by dynamically managing macro risk and by taking security-specific risk.
“In both cases, it is about being decisive about whether to ‘stick or twist’ with current allocations,” the wealth manager said.
“Our approach now is to ‘stick’. Though the joint drop in US stocks, bonds and the dollar in April spurred questions about the long-term appeal of US assets, we think the current economic set-up still supports US outperformance. We’ve seen volatility in markets, but it hasn’t shown up in US earnings. That consistency still counts.”
Last week, BlackRock pointed out that even as the big-picture economic landscape shifts, it is still relying on economic truths that don’t change – truths that, it said, are shaping its short-term investment strategy.
Namely, at the time it highlighted that as long as long-term anchors weaken, it will find new ones in mega forces and lean more on its short-term views as immutable economic laws limit the pace of change.
Elaborating on this on Tuesday, BlackRock said: “We’ve long said that immutable economic laws – like supply chains can’t be rewired fast without major disruption – will prevent US tariffs rising back to April 2 levels.
“The extension of the tariff pause to August supports that thesis. Yet wherever tariffs land, it’s not yet clear who will bear the cost: companies, consumers or exporters. That uncertainty will heighten already elevated dispersion.”
The wealth manager also noted that while before the pandemic persistent factor exposures – such as to growth, value or inflation – typically didn’t hurt portfolios, “that’s no longer so”.
“For investors, we think this requires watching for unintended static factor exposures and deploying active strategies to capture the additional alpha on offer,” it said.
Ultimately, the wealth manager noted, US tariffs could intensify already elevated dispersion, making this a more rewarding environment for alpha.
“Dynamically managing macro risk and taking security-specific risk can help capture it. We eye selective global opportunities,” it said.
Also this week, T. Rowe Price announced it has modestly increased its risk appetite, upgrading its overall risk profile towards neutral as it seeks to balance the impacts of trade tensions alongside fiscal and monetary policy support for global growth.
In its latest Global Asset Allocation: The View from Australia report, the fund manager acknowledged that while key risks such as elevated equity valuations, sticky inflation and geopolitical uncertainty persist, financial markets have rallied.
But despite lifting its overall risk stance, T. Rowe Price said it maintains an underweight position in equities while continuing to favour opportunities outside of the US on more compelling valuations as well as improving sentiment.
