BlackRock pushes three investing themes

BlackRock is homing in on three themes that it describes as “permanent transformations unlocking exponential growth opportunities” that could give financial advisers new diversification plays.

In broad terms, the world’s largest asset manager unveiled its thematic focus on what it's describing as the new consumer, an industrial renaissance and medical breakthroughs.

A research paper released Wednesday to coincide with a BlackRock press conference identifies “permanent changes” that have exposed “underestimated investment opportunities.”

The new consumer area recognizes millennials as “major spenders driving the global economy,” coupled with the increasing spending power from developing markets. The research says the new consumers’ “unique preferences for decentralized digital ecosystems and greener goods could transform commerce.”

Alex Eldemir, BlackRock’s global head of factors, sustainability and solutions strategy, said that while the pandemic slowed economic activity, “it couldn’t slow structural shifts.”

“Millennials have entered their peak spending years,” she said. “Emerging market consumers and millennials are driving more than 50% of global spending.”

The industrial renaissance is a theme that was boosted by the Covid-19 pandemic, which forced wider adoption of technologies and innovation to enable remote work and virtual connections.

“While virtual technology drove many investor returns through the pandemic, real-world, physical technologies are where innovation and return potential sit today,” the report states. “Global inflation and supply chain disruption make industrial investments in automation, infrastructure, and the future of transportation immediately critical.”

Tony DeSpirito, chief investment officer of U.S. fundamental equities at BlackRock, said the supply chain issues that resulted from pandemic lockdowns have highlighted the potential of that industrial renaissance.

“We are rethinking global supply chains,” he said. “We’re in early stages of the revolution here with mobility, whether it's electric or autonomous vehicles.”

With regulations, technology, and consumer demand listed as drivers of the industrial renaissance, DeSpirito said it is being fueled by multiple forces “and that’s how you know it will be long in duration.”

As an example of the pace of technological innovation, he cited the falling cost of electric vehicle batteries, which “are down about 80% over the last 10 years.”

“Extrapolate that, and in three years electric vehicles should be comparable to internal combustion vehicles,” DeSpirito added.

The medical breakthrough theme is also tied to the pandemic and the example of the pace of development of a Covid vaccine.

“The progress made in genomics, immunology and precision medicine technologies is at an inflection point, leading to an acceleration of medical breakthroughs and treatments,” the report states. “The lessons learned through the speed with which Covid vaccines came to market could help accelerate precision medicine treatments more broadly.”

DeSpirito said the development of a Covid vaccine in 2020 was a “great example of the innovative trend in health care.”

“The vaccine was way more effective than people expected, and it was developed faster than any vaccine in history,” he said. “When you think about mRNA technology, it’s a case study for what can be done genomically. They’re already looking to take this mRNA technology and apply it to other diseases.”

In addition to identifying the three themes that the research suggests the stock market is currently underestimating, BlackRock representatives stressed diversification and patience.

“We think investors should pay attention to the calmer waters ahead, because these are longer-term trends,” said Gargi Chaudhuri, head of iShares investment strategy Americas at BlackRock.