BlackRock (BLK.N) will use profits it is making in gold and bond markets to seek out bargains in falling global equity markets, James Holt, investment strategist at the world's largest money manager, said on Tuesday.
"Gold and bonds are doing really, really well and we're making profits on them and putting these into the asset classes that are getting cheaper and cheaper, which are definitely equities," Sydney-based Holt said in an interview.
Gold equities and gold exchange traded funds (ETFs) account for about 5 percent of BlackRock's $83 billion global allocation fund, according to Holt, and BlackRock overall manages an estimated $3.7 trillion in assets.
U.S. gold futures for December struck a record around $1,746 an ounce on Tuesday, while cash gold hit an all-time high about $1,742 an ounce, its 12th record in 20 sessions.
Investors worldwide have been dumping any growth-related assets on fears the twin U.S. and European debt crises would tip the world economy into another recession, pushing up safe havens such as government debt and gold that provide insurance against depreciating investments.
CHINA EXPOSURE, DIVIDENDS SOUGHT
"Our global allocation fund still likes equities on the whole, but we tend to have had those equities that are either exposed to Chinese growth, which is more sustainable, or the big multi-national dividend payers, the ones that have the lowest PEs (price-earnings) and highest dividends, and pretty strong cash flows," Holt said.
He singled out telecommunications, healthcare and energy sectors as preferred sectors for the fund.
Energy stocks, he said, were offering substantial dividends, possess a lower beta, or measure of risk, to the oil price and act as a proxy on the Chinese consumer.
"We have been underweight U.S. Treasuries and have virtually no Japanese government bonds," Holt said.
The Japanese bonds were "fundamentally, very expensive," he said.
"A big thing for our global allocation fund will be as the market goes lower, we will be nibbling into the market each day. Our bonds and gold holdings will be doing well, but when we are rebalancing, we will be rebalancing into equities," Holt said.
Wall Street ended its last session down more than 6 percent while European stocks hit a two-year low.
"As equities get cheaper and cheaper, the question is: As the fire is around you, do you want to take out more insurance, or do you want to start preparing for after the fire?," said Holt.
"I think that is the type of territory we are moving toward," he said.
Holt said that even before the decision on Friday by U.S. rating agency Standard & Poor's to lower its long-term credit rating on U.S. government bonds by one notch to AA-plus from its highest AAA level, stocks were already "looking pretty cheap."
"We've been carrying a lot of cash through this crisis as well, depending on the period between 7 percent and 12 percent and we also have about a 5 percent allocation to gold," hold said, adding investments in gold were roughly divided 50-50 between gold equities and ETFs.
"The thing about gold is that it always comes along at the right point to balance out risks in the fund," Holt said
(Editing by Balazs Koranyi)