By Jeffrey Rosenberg :
After a long and winding 2016, we reach another holiday season. As we have done for several years, we are checking in with some of our top authors for their views on the coming year and beyond. Our panel includes experts on a range of different asset classes and investing strategies. As always, the focus is on an overall approach to portfolio construction and investing outlook.
We continue this series with Jeffrey Rosenberg, BlackRock's Chief Investment Strategist for Fixed Income. He helps develop BlackRock's strategic and tactical views on sector allocation within fixed income, currencies and commodities.
He responded to a few questions from Seeking Alpha Editor Rena Sherbill about the markets and what investors should look for in 2017.
Rena Sherbill (( RS )): How would you describe your investing philosophy, broadly speaking?
Jeffrey Rosenberg ((JR)): Focus on the credit cycle - it leads the business cycle. Fear and greed drive markets; lean against the prevailing emotions. Follow my favorite Buffetism: Be fearful when others are greedy and greedy when others are fearful.
RS: As we approach 2017, are you bullish or bearish?
JR: Both. There are some really bullish things happening for the economy - shifting policy, the prospect for real structural reforms and fiscal reforms altering the low growth consensus and reducing the threat of a deflationary environment. At the same time the financial market vulnerabilities to such a transition raise the risks of a disruption due to the transition. On net, that is bullish and optimistic, but with a cautionary undertone.
RS: Which domestic/global issue is most likely to adversely affect US markets in the coming year?
JR: Too strong a dollar; too large an increase in inflation expectations.
RS: Which countries/sectors/asset classes are you currently most bullish on and why?
JR: TIPS and more broadly global reflation; Bank equities on reflation and steeper yield curves as monetary pulls back from zero/negative policy and QE/QQE.
RS: For investors with a long-term horizon and a reasonable risk tolerance, what is the correct mix between [relevant] asset classes?
JR: Depends on where they are in the life cycle. A lesson that shouldn't be forgotten from the last major downturn in 2008 is that investors with shorter horizons to retirement face greater constraints on their equity risk tolerance. When you have a long investment horizons, downturns in stock portfolios can be mitigated through dollar cost averaging. But for older investors, exposures to equity investments during downturns when they need to access funds for retirement leads to dollar cost "ravaging".
RS: Where have you been having yield-hungry investors turn for income in this low rate environment?
JR: Emerging markets and credit risk. Credit risk has been - and we expect this to continue in 2017 - a better place than interest rate risk. That is because of a rising rate outlook. But we advise a balance between those yield needs and preservation of principal needs as valuations have become a bit stretched in some sectors - and in the case of emerging markets - some new risks are now in the outlook - leading to our preference for a bit more quality exposure in the credit allocation.
RS: What are the major catalysts for markets in 2017?
JR: Politics, fiscal policy reforms, and the dollar. The impacts will be global and the transition from low to moderate growth expectations in the US will pass through the dollar. The key will be how quickly.
RS: Any additional considerations you'd like to share with readers as they ponder their investing strategy in 2017 and beyond?
JR: Investor, know thyself. It's easy to get caught up in rising markets. They breed complacency. Ask yourself how you would feel about X happening to your portfolio and make sure you have the right investment mix for your investment risk tolerance. (And by "X" I don't mean Dow 30,000 - everyone is happy when they are making money - it's the risk scenarios that need to be thought through - and preferably ahead of time!)
See also Anton Wahlman Positions For 2017: Tesla, Detroit And Changes Coming From D.C. on seekingalpha.com