'Historically attractive': BlackRock's $2.3 trillion bond chief told us 5 places to buy the dip as the coronavirus crisis ravages markets
- The coronavirus crisis and its impact on financial markets is unlikely to be resolved as quickly as it arrived, says Rick Rieder, who oversees $2.3 trillion as the chief investment officer of global fixed income at BlackRock.
- In an exclusive interview with Business Insider, he shared five areas of the credit and stock markets where investors with medium-to-long time horizons can shop for cheap assets.
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Rick Rieder has seen multiple financial crises in his day - and this one is definitely different.
The chief investment officer of global fixed income at BlackRock - where he oversees $2.3 trillion - says the coronavirus crisis is more intense than even the 2008 recession in terms of its near-term shock to the system.
Within a month, stocks sunk from new highs to a bear market at their fastest-ever pace. Treasury yields of varying maturities including the benchmark 10-year fell to record lows. And the fallout on the economy is projected to be just as swift: Morgan Stanley economists see the unemployment rate jumping to its highest on record since the 1940s.
"This has a lot of 9/11 in it in terms of being so fast and nobody really being prepared for the depth of uncertainty," Rieder told Business Insider by phone in an exclusive interview.
In addition to speed, this pandemic is different in terms of its open-endedness, Rieder said. It has created uncertainty not just about when the economy will recover, but about whether workers will physically be able to regroup in the weeks and months ahead.
In terms of the eventual recovery, Rieder is not expecting a v-shaped pattern that would feature the economy and markets bouncing back as quickly as they slumped. Instead, he foresees things returning to normalcy more gradually.
Read more: Why BlackRock's $1.7 trillion bond chief gets up at 3:30 a.m.
Still, Rieder finds some areas of the stock and bond markets attractive to buy in the interim due to the sudden downward shift in markets. But he cautions that there may still be more market losses to come.
"With that uncertainty out there and the desire to hold more cash, my sense is we probably have a bit more downside," he said.
But for investors who have a medium-to-long-term time horizon, Rieder singled out five parts of the market that have cheapened significantly and are now worth investigating for buying opportunities. There's a paradox between these asset groups that are "historically attractive" relative to normal expectations and where they are trading today.
His ideas are as follows:
- Treasury Inflation-Protected Securities: The 5-year note's so-called breakeven inflation rate - the average annual rate of inflation needed for TIPS to match the note's performance - fell to as low as 14 basis points last week. In other words, traders expected inflation to be around 0.14% in five years.
That was the lowest level since 2009 - and quite low in terms of inflation's' realistic trajectory over that timeframe, according to Rieder.
"A month ago, people were talking about maybe there will be too much inflation and wage pressure," Rieder said. He added that even though oil prices may stay low for some time, "it's hard to envision a scenario where we're not going to have any inflationary power for five years." - Large consumer discretionary companies are "extremely attractive."
"Even if you stress their earnings radically for the next two or three quarters, those models are very, very attractive," he added. These stocks are reflected in the iShares Global Consumer Discretionary ETF. - Technology stocks, which are captured in the iShares US Technology ETF.
- Healthcare stocks, contained in the iShares US Healthcare ETF.
- And finally, defense stocks, represented by the iShares US Aerospace & Defense ETF.
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