BlackRock equity fund seeks to cash in on growing risk appetite ahead of rate cuts
BlackRock has launched a new equity fund in Hong Kong as investors gradually add risk to their portfolios and move away from cash products ahead of anticipated interest rate cuts.
The world's largest asset manager aims to capitalise on investors' growing appetite for stocks to complement their risk-averse and income-focused portfolios in recent years when record-high interest rates affected markets.
"[Investors] are slowly adding risk," said Mandy Lui, head of Greater China wealth at BlackRock. "In the last 12 months plus, when interest rate levels were very high, investors in Hong Kong were very comfortable with very high-income products, or high-yielding products, or even deposits that pay very high interest."
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Now, with investors expecting interest rates to come down and income levels to decline, they are generally looking to sustain growth and add to their returns, she added.
Fixed income and money market funds attracted the most net inflows of US$4.1 billion and US$632 million, respectively, in the first quarter in Hong Kong, while net outflows for equity funds stabilised, according to data from the Hong Kong Investment Funds Association. Equity funds shed US$206 million in May compared with an outflow of US$738 million in December, the data showed.
On Wednesday, Federal Reserve chair Jerome Powell told lawmakers that US interest rates can be cut even before inflation drops to the Fed's target of 2 per cent.
BlackRock said the new Global Unconstrained Equity Fund, which was simultaneously launched in Singapore, will not be constrained by benchmarks, sectors, countries or factors when selecting investments.
"We think equity investing should be a long-term pursuit and we should be filtering out a lot of the noise of the short term," said Joseph Williams, head of strategy for strategic equity and fundamental equity hedge funds at BlackRock.
Joseph Williams, BlackRock's head of strategy for strategic equity and fundamental equity hedge funds. Photo: Handout alt=Joseph Williams, BlackRock's head of strategy for strategic equity and fundamental equity hedge funds. Photo: Handout>
The fund managers will aim to pick companies that have superior earnings power over the long term by analysing the strength of the franchise, reinvestment opportunity and the sustainability of the company's returns, Williams added.
The new fund's performance will be measured on a three-year rolling basis against the MSCI World Index.
The fund will focus on developed markets and established brands. It currently invests in 20 to 30 companies, with the largest holdings in Microsoft, Dutch lithography equipment maker ASML, Danish pharmaceutical company Novo Nordisk, US electronic design automation giant Cadence Design Systems, and Google's parent, Alphabet Inc.
"This fund actually is most suitable for those who don't want to time the market," Lui said. "If you look at the track records, timing the market is very difficult, especially for investors who are timing the market based on public news. You're almost always a step behind."
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