Such segments include both small caps and certain defensive income plays, like utilities – both of which have historically proved more vulnerable to contracting valuations as real rates rise.
Focus on relative value. Given that most asset classes look expensive, I continue to prefer market segments that offer relative value. Currently, I see value in select international markets, particularly in Japan and emerging Asia. Despite Japanese equities hitting their best level since the fall of 2007, Japanese stocks are still relatively cheap. In emerging Asia, while flows have turned negative and China is struggling to hit its growth targets, I believe structural reforms in China, India and the rest of Asia should support these markets over the long term.
You can read more about my take on these particular asset classes in my latest Investment Directions monthly market outlook.
Sources: BlackRock, Bloomberg
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.