ETF Wrap: Where BlackRock sees ‘tremendous’ market opportunities for ETF investors in 2023 after damage to stocks, bonds


Hello! In this week’s ETF Wrap, BlackRock’s Gargi Chaudhuri, head of iShares investment strategy for the Americas, discusses ways for investors to play a world of higher rates and elevated inflation in 2023.

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As investors assess the damage inflicted on asset prices by rising interest rates in 2022, an environment of higher rates should favor value-style equities in 2023, while bonds offer “tremendous” opportunities for income, according to BlackRock’s Gargi Chaudhuri, head of iShares investment strategy for the Americas.

“We probably have not seen the bottom in the equity market yet,” Chaudhuri said in a phone interview. “Historically, whenever you thought of buying the dip, you thought of buying tech.”

So, the notion that value stocks may outperform next year is “a departure from a decade of growth leadership,” according to a note Wednesday from Chaudhuri that provides investors a guide to 2023. As investors consider the impact of the Federal Reserve’s rate hikes on the stock market, and potentially allocating more to equities, value stocks are an area that should fare relatively well, she said by phone.

Investors might consider the iShares Russell 1000 Value ETF

and iShares MSCI USA Value Factor ETF

as options, Chaudhuri suggested.

“We have moved away from a world of low-to-negative real rates to a world of higher rates,” she said. Investors should think about “what parts of the equity market are going to thrive in a positive and sustained higher-rate regime, and that actually points to value.”

At this point, it seems unlikely that the Fed will over the next three to six months “suddenly turn around and start cutting rates,” she said. The central bank has been aggressively raising rates to combat high inflation, hikes that some investors worry could tip the U.S. into a recession.

Small-cap stocks?

While Chaudhuri currently anticipates that a recession is likely in 2023, she said that investors who believe that the Fed may “engineer a soft landing” for the U.S. economy might consider buying small-cap equities rather than growth stocks in a regime of higher rates.

She pointed to the iShares Core S&P Small-Cap ETF

as an option. Shares of the ETF are down 11.1% this year through November, according to FactSet data. That compares with a 14.4% drop over the same period for the S&P 500 index, which Chaudhuri described as “very heavily oriented toward technology companies.”

‘Rethinking’ bonds

Investors should consider “rethinking the role of bonds” in their investment portfolios in 2023, according to Chaudhuri’s note, which cited the iShares 1-3 Year Treasury Bond ETF
iShares 1-5 Year Investment Grade Corporate Bond ETF

and iShares MBS ETF

as potential buying opportunities.

Like stocks, bonds have been hurt by rising rates in 2022.

“The repricing of yields and the return of income has really created a tremendous, absolutely extraordinary opportunity in the bond market,” Chaudhuri said by phone. “Investors have to rethink the role of bonds in their portfolio as a result of income.”

For example, investors may now be able to allocate more of their portfolio to fixed income to achieve a 6.5% yield compared with 2015, a chart in her note shows.


In 2015, investors had to go “a lot further out in the risk spectrum” for a 6.5% yield, potentially by owning more junk bonds or equities, she said by phone.

Elevated inflation

As for the surge in the cost of living of this year, BlackRock expects that it’s unlikely that core inflation will fall back to pre-pandemic levels of below 2%, even if it eases.

As investors adjust to “living with inflation,” Chaudhuri indicated in her note that the iShares TIPS Bond ETF

and iShares U.S. Infrastructure ETF

may provide exposure to equities that historically are “attractive in a higher inflationary regime.” She also cited the iShares MSCI Global Agriculture Producers ETF

as an investment option amid elevated inflation.

As usual, here’s your look at the top- and bottom-performing ETFs over the past week through Wednesday, according to FactSet data.

The good…

Top Performers


KraneShares CSI China Internet ETF


iShares China Large-Cap ETF


WisdomTree China ex-State-Owned Enterprises Fund


EMQQ The Emerging Markets Internet & Ecommerce ETF


iShares MSCI China ETF


Source: FactSet data through Wednesday, Nov. 30, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater

…and the bad

Bottom Performers


United States Natural Gas Fund LP


First Trust Nasdaq Oil & Gas ETF


Alerian MLP ETF


iShares U.S. Oil & Gas Exploration & Production ETF


SPDR S&P Oil & Gas Exploration & Production ETF


Source: FactSet

Weekly ETF reads

China-focused ETFs jump amid sign the country may be on path toward looser COVID policies (MarketWatch)

ProShares launches ETF investing in miners of metals for batteries powering electric vehicles (MarketWatch)

Meet Kevin, the ETF (The Wall Street Journal)

Investors Pull $8 Billion From Major Stock ETFs (Bloomberg)

Goldman makes ‘white-label’ bet on white-hot ETF market (Financial Times)

Record $3 Billion Exodus Hits Credit ETF in Abrupt Risk Reversal (Bloomberg)

Anti-Ark ETF’s Creator Is Losing Fund in Break From New Firm (Bloomberg)

Personal Finance Daily: Turns out a real estate guru peddling the ‘deal of a lifetime’ was really a fraud and hurricane season’s late start made for an average year but a big insurance bill

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