Staycation Or Vacation: 5 Summer Investing Themes

by: Christopher Dhanraj

Consider taking some profits and rotating into exposures that offer more resilience if volatility returns.

But overall, we would not abandon equities.

Five major investor themes for the weeks ahead.

With growing uncertainty ahead, Chris discusses ways to navigate markets as summer approaches.

“Sell in May and go away” is an old maxim for investors. Evidence is mixed on its validity, but given this year’s rally, the temptation now is understandable, particularly given the recent volatility driven by renewed trade conflicts with China. Our take: sure, consider taking some profits and rotating into exposures that offer more resilience if volatility returns. Think of it as the investor version of a “staycation,” an opportunity to catch up on chores. But overall, we would not abandon equities.

With summer just around the corner, we highlight five major investor themes for the weeks ahead as discussed in our latest publication, the Summer Investment Directions:

1. In the U.S., consider reverting to technology

We remain overweight U.S. equities, and one of our favored sectors is technology. Even with strong performance this year, we believe the sector remains appealing. Technology firms tend to have strong balance sheets and healthy earnings trends, as well as enjoying support from longer-term trends. These are all attractive qualities in a late economic cycle. Furthermore, tech stocks have historically fared well through various yield curve regimes.

2. Follow events in Europe, which may be poised for revival

Investors in Europe have had little reason for optimism for some time. But we expect European growth to accelerate this year given solid domestic demand. Valuations look attractive relative to history, although political and trade risks linger. China’s efforts to stimulate its own growth could help export-heavy economies, such as Germany.

3. Keep an eye on reform progress in Brazil

Brazilian assets have underperformed the broad emerging market index this year, despite signs that economic growth is accelerating and earnings prospects remain intact. Instead, investors are focused on the negotiations around pension reform. We expect volatility around the negotiations to continue until reform is enacted. Overall, we still favor emerging markets, however.

4. With the return of the benign regime, consider quality, intermediate-term, fixed-income spread assets

The Federal Reserve’s rate hike pause has benefited fixed-income sectors and assets across the board. Given the market expects rates to remain contained this year, these seemingly benign conditions could last for some time. In this environment, we favor quality, intermediate-term fixed income spread assets, such as agency MBS and high-grade corporates.

5. Relative strength leads us to upgrade the quality factor

Our factor-tilting model examines multiple metrics, including relative strength, which uses a simple measure of 12-month price momentum to determine the trending behavior of each factor and compare market sentiment in one factor versus the others. We’ve upgraded quality from neutral to overweight, while downgrading minimum volatility and momentum.

Related iShares Funds

iShares U.S. Technology ETF (IYW)

iShares Exponential Technologies ETF (XT)

iShares MSCI Eurozone ETF (EZU)

iShares MSCI Brazil ETF (EWZ)

iShares Core MSCI Emerging Markets ETF (IEMG)

iShares MBS ETF (MBB)

iShares Agency Bond ETF (AGZ)

iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

iShares Edge MSCI USA Quality Factor ETF (QUAL)

This post originally appeared on the BlackRock Blog.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.