Despite a bumpy start to the year, stock exchange traded funds could continue to expand but don’t expect a repeat of last year as the market rides out a more volatile year.
So far, U.S. economic data has been mixed, with a weak employment report and dip in manufacturing activity weighing on the market. The disappointing data, along with slowing growth in the emerging markets, sent global equities tumbling and pushed volatility higher – the CBOE Volatility Index, or VIX, hit a 13-month high of 21.4 last Monday.
Nevertheless, Russ Koesterich, managing director, BlackRock’s global chief investment strategist and global chief investment strategist for iShares, points out that stocks could provide better value going ahead, compared to bonds.
“We do expect equity gains will be more muted this year than last year and the ride will be rockier, but we would also suggest that periods of weakness like we have seen over the past couple of weeks provide opportunities to selectively add to equity exposure while trimming bond holdings,” Koesterich said in a note.
“As such, I continue to believe that equities will outperform bonds this year, and I view recent market softness as an opportunity to selectively add to equity positions and trim bond exposure,” added Koesterich.
Consequently, investors who are seeking equity exposure but want to limit the swings may turn more conservative large-cap, quality names.