What BlackRock is doing and why
By Paul Reid
26 April 2023
BlackRock, the world's largest asset manager, recently announced that it will sell some of its portfolio of securities from failed banks and other distressed assets. Sounds harmless, but what does that really mean for traders, and how will BlackRock’s actions affect the market?
Who is BlackRock?
Founded in 1988, BlackRock is one of the largest investment management companies in the world. BlackRock offers a range of investment products and services to institutional and individual investors worldwide, including mutual funds, exchange-traded funds (ETFs), and separately managed accounts.
BlackRock has over $8 trillion (USD) in assets under management, making it the world's largest asset manager. In terms of market capitalization, BlackRock is also one of the largest publicly traded companies, with a market cap of over $136 billion as of April 2023.
Despite its success, BlackRock has faced some controversies over the years. One of the most notable occurred in 2012 when it was revealed that the US Fed had hired BlackRock to manage some of its mortgage-backed securities during the financial crisis. Some critics argued that this represented a conflict of interest, as BlackRock was also managing similar securities for its own clients at that time. And yet, it was “overlooked.”
Since then, the New York-based firm has been absorbing US debt in the form of collateralized loan obligations and commercial mortgage bonds, but now there’s a noticeable shift, and the conspiracies are already circulating.
In recent years, theories have emerged around BlackRock playing a larger role in the global financial system than is publicly known, with conspiracy theorists claiming that the company is part of a cabal of bankers and financiers who control the world's economies from behind the scenes. There is no evidence to support these claims, and BlackRock has consistently denied any involvement in such activities, but it sure has a lot of influence in very influential sectors.
With such a network and diversified portfolio, it’s easy to imagine BlackRock making a few changes to reduce risk during a downturn. So what's BlackRock's plan?
What assets does BlackRock trust?
BlackRock has perhaps the most sophisticated economic forecasting models in the world. They factor in weather, war, even natural disasters. If they are moving out of a sector, should we follow?
BlackRock's Financial Markets Advisory group has been selling off securities over the last two weeks, including collateralized loan obligations, commercial mortgage bonds and niche asset-backed debt. But why now? Why so suddenly?
Major central banks are hiking interest rates into recession to bring inflation down. BlackRock strategists warn that this does not indicate a return to the overall gains seen since the 80s. In fact, the strategists recommend a fresh approach to building portfolios, one where strategic views need to be more granular, across sectors and within private markets, to help build more resilient portfolios that reflect our current times.
BlackRock has said without secrecy that they recommend looking at specific equity sectors such as energy or healthcare stocks, and selecting companies with robust cash flows and resilient supply chains that can endure a recession.
The switch from government bonds to private equity, such as stocks, is not so surprising. Warren Buffett also moved out of US Bonds recently in favor of private stocks, including many European assets.
Such moves by key players can trigger larger sell-offs, igniting a chain reaction of bearish volume. Analysts and journalists know this, so we can be sure that BlackRock knows it better.
Should we listen to the BlackRock strategists, or should we distrust BlackRock? The reason for the US Equity sell-offs could simply be to reduce exposure to risky assets during high inflation and rising interest rates. Nothing suspicious there.
But, for many economists, there is a veiled implication that the banking section is in serious jeopardy, a tell-tale of a deep recession on the horizon — or worse. US bank First National is losing traction already, and it’s not the only one showing a steep downward track on the charts.
BlackRock’s sell-off could cause a further decline in the prices of US securities, as well as a shift in the market sentiment towards more defensive and inflation-protected assets.
One thing is for sure, there’s a lot happening in the financial world right now, and a global downturn will affect BlackRock’s $8 trillion in assets. New alliances are forming, diplomatic agreements are being ratified – and broken – every day.
It is strongly recommended that you follow the news and check the economic calendar more than usual for the coming weeks and months. Make sure you review reports from the US, Europe, and Asia, and if possible, read independent analysis. Look for different spins on the same data. If you see a US media trend suggesting US-related assets are a “long” opportunity, consider doing the opposite. Buy the rumor, sell the news.
Consider installing the Exness Trade app to get notifications on major announcements, breaking news from respectable international publishers, and instant alerts on price moves. Whichever way you choose to monitor the news and markets, keep it close, check it often, and make sure your trading account is funded and ready if you plan on acting fast on coming volatility.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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