BlackRock says global markets have become more volatile and will remain so for some time. The world’s largest asset manager says the era of steady growth and low inflation is over: “We believe that traditional portfolios, hedges and risk models will no longer work.” “The Great Moderation, a long period of steady growth and low inflation, is over in our view,” the BlackRock Investment Institute said in an Aug. 1 report. “Investors are tethered to the market roller coaster in a new regime of heightened volatility.” Three investment pitfalls that could confuse investors in this volatile market, according to BlackRock, and he urged investors to avoid them. And the asset manager also outlined what to do instead. Stop following manuals such as ‘buy the dip’ Markets have recently revived hope that the US Federal Reserve is about to change course and ease policy, after dropping into bearish territory earlier this year due to high inflation, Fed tightening and recession fears. “This optimism is misplaced, in our view. All of this calls on professional investors to change their portfolios more quickly,” the BlackRock analysts wrote. The asset manager said an investment bias is “public enemy No. 1” for investors, and that is inertia. Investors are reluctant to take risks or “make them too small to affect performance”. “It will be costly, in our view, to simply follow manuals such as ‘buy the dip’ or make slow, minimal changes,” BlackRock wrote. Don’t overvalue your assets Investors should “clearly” declutter their portfolios instead of “over-deliberating,” says BlackRock. “People with this bias overvalue their assets. The longer they own them, the higher the price they ask to give them up,” the asset manager said. This bias can cause investors to hold onto their positions even after an investment strategy “plays out,” he said. “This can hurt performance. Positions often produce more returns earlier in their lifespan, we find.” Don’t Let Losses Cloud Your Judgment When investors feel stinging losses — as many do now — they’d rather hold losing positions too long or sell winning positions too soon, BlackRock said. “Stocks and bonds have seen declines not seen since the 1970s this year,” BlackRock analysts said. “Behavioral finance finds that people feel the pain of loss twice as strongly as they experience an equally pleasurable equivalent gain.” Meanwhile, BlackRock said investors find it tempting to sell winning positions too early due to an “unwillingness to take on more risk for marginal benefits.” What BlackRock is Doing Instead BlackRock says the new era of volatility requires “a rethinking of portfolios”, and says it has reduced risk in its positions throughout this year. The company had nearly $10 trillion in assets under management at the end of the first quarter. Here’s what BlackRock said it was doing: Adding quality to portfolios: It underperformed developed market equities and improved investment-grade bonds. Inflation Stance: BlackRock likes inflation-linked bonds because it says markets generally undervalue inflation. “Major spending shifts and production constraints are driving inflation. The constraints are rooted in the pandemic and have been exacerbated by the war in Ukraine and lockdowns in China,” he said. declared. Stance for climate goals: BlackRock said markets have not fully priced in what many hope will be a global transition to more environmentally friendly energy sources. Over time, companies that are better prepared for such a transition are likely to be more valued, Blackrock said. “Climate risk is an investment risk, and the narrowing window for governments to achieve net zero targets means investors need to start adapting their portfolios today. wrote. Investors can invest not only in green energy companies, BlackRock said, but also in those in carbon-intensive industries with “credible” transition plans, or those that supply materials for that transition. BlackRock likes sectors such as technology and healthcare, which it believes stand to benefit more from an energy transition. He also said there are tactical opportunities in some energy stocks.