BlackRock Says Investors Ratcheting Up Risk in Low-Rate World

The prospect of a long spell of low-to-negative global interest rates is pushing money managers into riskier securities where they may have less experience, according to BlackRock Inc.

It‘s a trend that should continue as investors look beyond traditional haven assets for yield and resilience, said London-based Isabelle Mateos y Lago, the global head of the firm’s official institutions group. That means turning toward illiquid and alternative investments as well as high-yield debt, she said.

The worlds stockpile of negative-yielding debt has soared to $16.3 trillion, approaching an all-time high and up from a low of $7.7 trillion in mid March, according to a Bloomberg index.

“Portfolio construction is being completely taken back to the drawing board because people understand we‘ll face these low interest rates for a long, long time,” Mateos y Lago said on Bloomberg TV. “Asset owners are trying to get yield and returns in line with their mandate. Thanks to that you’re seeing capital flow back to emerging markets who direly need that.”

WATCH: BlackRocks Isabelle Mateos y Lago says portfolio construction is being completely taken back to the drawing board by long-term low interest rates.

Source: Bloomberg)

Money is also flowing back into corporate bond markets, she said. Meantime, the combination of fiscal stimulus and a broader economic reopening, despite second waves of Covid-19 infections, may trigger a rotation within equities.

“You should see less outperformance from these tech stocks that have benefited so much from the lockdown,” Mateos y Lago said. “People are warming up to small caps, cyclicals and things that tend to do well in reflation and expansion.”

— With assistance by Tom Keene, and Francine Lacqua