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Nov. 24, 2020, 11:26 a.m. EST

BlackRock upgrades U.S. stocks but favors this ‘nuanced’ approach

By Callum Keown

BlackRock has upgraded U.S. equities to overweight but called for a “nuanced approach,” given the tough winter ahead before vaccine deployment potentially rides to the rescue in 2021.

The fund manager’s strategists recommended a ‘barbell’ strategy, favoring quality large-cap stocks riding structural growth trends, such as technological dominance and sustainable assets, as well as smaller companies geared to a potential cyclical upswing.

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The challenging months ahead in the U.S. and Europe supported the case for large-cap tech and health-care companies to further outperform, they said. However, prospects for an accelerated economic restart in 2021 — amid positive vaccine developments — favored more cyclical exposures, the strategists added. 

“Should investors stick to quality — a perennial recent winner — or rotate into beaten down cyclical exposures?” asked BlackRock global chief investment strategist Mike Pyle.

“We believe this is not an ‘either/or’ question — and advocate a more nuanced approach…quality companies that should outperform even if fiscal support disappoints; and selected cyclical exposures that are likely to thrive as the timeline for widespread vaccine deployment advances,” he added.

Read: If Wall Street’s S&P 500 forecasts for 2021 are wrong, these stocks will prevail, says strategist

This balanced approach would give investors greater portfolio resilience, the strategists said, as uncertainty around vaccine deployment and further pandemic relief remains high. The upgrade to U.S. equities and its higher share of quality companies was how the strategists opted to gain exposure to structural growth, they noted.

BlackRock strategists were more selective when it comes to cyclical exposures, tilting toward mid and small-cap U.S. companies, emerging market equities and Asian ex-Japan stocks. But they downgraded European stocks to underweight, given Europe’s high exposure to financials, set to be pressured by low rates.

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