BlackRock's bond chief who oversees $2.3 trillion told us how the coronavirus crisis created a game-changing investment opportunity for the first time in almost 20 years — and shared 4 ways he's cashing in

  • The incentives to diversify your portfolio by investing in Europe have rarely been as attractive as they are today, according to BlackRock's Rick Rieder. 
  • His reasons include the eurozone's response to the coronavirus pandemic and unique risks to the US investing outlook. 
  • In an exclusive interview, Rieder detailed his rationale for investing in Europe and shared some of the bets he is making.
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We're unlikely to soon run out of superlative ways to describe how the coronavirus crisis has impacted financial markets.

One new entry to consider for your record keeping is the attractiveness of European assets to US investors, according to Rick Rieder, the chief investment officer of global fixed income and head of the global allocation team at BlackRock. He says the eurozone's response to its economic crisis has spurred a "potential investment game-changer" and sweetened incentives to put money to work there. 

"I think for the first time in maybe 10, 20 years, that European equities and parts of the credit markets are a really good diversifier for a variety of reasons," Rieder told Business Insider during a recent interview. 

In addition to overseeing BlackRock's $2.3 trillion fixed-income business, Rieder is a portfolio manager for the firm's Global Allocation Fund. Over the past 12 months (Rieder has been at the helm for 15), the fund has outperformed 94% of its peers and returned 7% versus -3%.

He broke down a four-part rationale for investing in Europe, and then shared some of the buys he is making.  

Why US investors should consider European assets

His first reason is the European Union's €2 trillion ($2.3 trillion) recovery fund. It combines budget increases, grants, and loans to repair the bloc's economy in the continuing fallout of the pandemic. 

For Rieder, this coordinated effort is a first in terms of combating debt among Eurozone member countries. He is particularly encouraged by the fact that weaker economies in the region like Italy will be able to issue debt without worrying whether they would come under severe strain. 

The second reason for Rieder's new dose of confidence in European assets is coordinated fiscal policy. In another first, Germany — Europe's biggest economy — and other countries in the region are unleashing "tangible" stimulus, Rieder said. Germany's package includes tax cuts on some goods including food and €300 ($341) to parents per child, according to Reuters.

Rieder's penultimate motivation is that valuations in Europe are significantly cheaper than they are in the US and parts of Asia. Indeed, this relative gap remains a strong motivating factor for US investors who are looking diversify their portfolios following the strongest stateside bull market in history.   

Attractive valuations are just one of the multiple reasons why Europe is an attractive diversifier, in Rieder's view. This leads to his fourth point: there are unique near-term risks to the US outlook. Traders are already bracing for a potentially contentious and volatile election season in November. Also, new coronavirus infections are soaring in parts of the US, whereas they've been contained in large parts of Europe.

These aforementioned points hinge on a unified euro area — and Rieder is not concerned about break-up risk. Absent a major political crisis, the euro should be a currency that bolsters returns from holding European assets, Rieder said. 

He concluded that for the first time in two decades, European assets will solidly augment holdings of other parts of the world. He further shared the following four areas he is buying up: 

  1. General eurozone stocks; broad exposure can be obtained via the iShares MSCI Eurozone ETF. 
  2. Rieder has been adding Italian stocks "for the first time in a long time." which are captured by the iShares MSCI Italy ETF. The Global Allocation Fund that Rieder oversees owns shares of Enel, a multinational energy company based in Rome.
  3. European tech companies. The iShares Stoxx Europe 600 Technology ETF provides exposure to this sector.  
  4. Consumer discretionary companies, based on his view that the European consumer is in relatively better shape amid the global economic crisis. The SPDR MSCI Europe Consumer Discretionary ETF is an option to track this cohort. 

Read more: 

  • The chief strategist of $2.5 trillion State Street recommends 7 ETFs for investors looking to profit from a permanently altered post-coronavirus landscape
  • Morgan Stanley handpicks 10 stocks to buy now for the richest profits as travel and outdoor activities transform in the post-pandemic world

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