The Chairman and CEO of Blackrock, Larry Fink believes that stocks have taken Europe into account and that it is safe to turn up the risk and buy stocks. Although Blackrock was founded and known as a bond firm, Fink believes investors should be in 100% stocks. Fink signals dividends as much more desirable at this time than bond yields saying, “I don’t have a view that the world is going to fall apart, so you need to take on more risk”.
However, Peter Fisher, Blackrock’s head of Fixed Income Portfolio Management, recommends that investors stick with bonds. Fisher signals the possible challenging times ahead and the need for investors to keep up with a steady income. “We see a quiet revolution building in the asset class as more and more investors learn how to use fixed income ETFs to build portfolios that combine low risk with the potential for yield” says Fisher.
Matt Tucker, head of iShares Fixed Income Strategy, also chimed in and agreed with his associate, Fisher. Tucker had this to say about the company’s iShares division; “Passive fixed income ETFs are essential building blocks of a portfolio and make particular sense during this period of historically low yield”. In short, Tucker is advocating for investors to allocate a piece of their portfolio to conservative, fixed income ETFs to play the low yield.
I think both Larry Fink and Peter Fisher/Matt Tucker are correct. However, I do believe you should be in stocks mostly with possibly some bond ETFs (as Fisher mentioned) to cover any possible risk from Europe. I do believe Europe poses a threat and will continue to threaten world markets until the latter half of 2012. Stocks with high yield dividends are where I would have most of my money. Dividend stocks these days are, in some cases, yielding higher than US Treasuries and bonds all together.
I do agree with Fink in that most of the risk and fear of Europe is priced in but that doesn’t mean you can start taking huge, risky bets. Stocks may have priced in the European debt crisis but it has not priced a Greek default, so that is why you can not be fully in stocks and taking on that high risk. Stick with high yield dividend stocks and maybe a bond ETF. These two together will give you a nice source of income as we watch tentatively at Europe in the coming months.