Forget Cash: Here’s Where iShares Sees Opportunities Next Year

Forget Cash: Here’s Where iShares Sees Opportunities Next Year
Theodora Lee Joseph, CFA

2 months ago2 mins

Everyone has difficult days. But with sluggish economic growth, sweaty inflation, and interest rates that are higher than they’ve been in decades, 2024 is shaping up to be a rough year for investors. Adding to the uncertainty is this year’s rise in geopolitical risks and the fact that about 40% of the world’s population (and 40% of the global economy) will be holding some form of national elections next year. With all that going on, there’s a strong potential for major leadership and policy changes. It’s no surprise, then, that a lot of investors are tempted to move to the sidelines, seeking comfort in cash.

But Gargi Pal Chaudhuri, head of iShares Investment Strategy Americas at BlackRock, says that wouldn’t be the smartest move. Back when interest rates were shooting up, that made sense, but now that the Federal Reserve (the Fed) has likely hoisted rates as high as they’re going to go, it’s a tougher call. In plain terms, chilling on the sidelines and hoping for some crystal-clear picture on policy rates might mean you’re missing out on the good stuff happening in other places.

The chart shows how stocks, bonds, and cash perform during specific phases of the Fed rate game. And in times like now, when the Fed’s taking a breather between hiking rates and cutting them, stocks and bonds usually massively outpace cash. But this opportunity tends not to linger. In the five rate-hiking cycles since 1990, the Fed took only about 10 months to go from hike to cut.

Now, Chaudhuri expects positive, but slower, economic growth in 2024, and doesn’t see any rate cuts until the second half of the year. That probably means you’ll see decent – but not mind-blowing – returns in the stock market, but with potential hiccups along the way. Chaudhuri’s betting on quality stocks and large-cap stocks with strong balance sheets: they’re likely to hit their groove in the slow dance of interest rates. And, she says, if you want to play things extremely safe and don’t mind swapping some potential gains for a safety net, adding in some buffered ETFs could be your jam. They can be nice to have when things get wobbly.

From the iShares lineup, you could consider the iShares Large Cap Moderate Buffer ETF (IVVM; 0.53%), the iShares MSCI USA Quality Factor ETF (QUAL; 0.15%), the iShares MSCI USA Min Vol Factor ETF (USMV; 0.15%), or the iShares Large Cap Deep Buffer ETF (ticker: IVVB; expense ratio: 0.53%). And there are plenty of other buffered ETFs to choose from, here.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG