• Every industry and asset class is regularly examined by the bank to identify the best investments.
  • Drilling down from a huge volume of research to a handful of key, easily digestible points is highly useful.
  • BofA has distilled its vast volume of research into the 10 investing themes of most use to investors.

Bank of America’s vast team of analysts, strategists and economists leave no stone unturned as they seek clues on what will happen next in financial markets and the global economy.

Every industry, major nation and asset class is regularly probed by various people across the bank to identify the best investments to make, and the ones to avoid.

The only potential downside to such a comprehensive approach is that the signal can get lost in the noise. Investors only have a certain amount of time and money and can’t invest in everything that has upside potential, so identifying priorities is vital.

Fortunately, that is exactly what the bank has done. Its team has picked out the 10 key investing themes that have been identified across the firm.

It has also quizzed its team of experts on the broad strategies that investors can apply in each case to generate returns. Here is their top ten.

1. Fed tightening: profit risk keeps global markets in risk-off mode 

The Fed is behind the curve and hiking rates into overvalued markets. Higher real cost of capital means long duration assets are particularly at risk.

Ways to position: 

Savita Subramanian is recommending an overweight in the


healthcare sector

. Michael Hartnett prefers defensive trades including long US$, long VIX, long quality, yield and long commodities to hedge inflation. Hartnett is underweight cyclicals and broker dealers which have benefitted from easy financial conditions.

2. Inflation remains well above trend

Inflation will peak in early part of 2022, but remain well above the pre-pandemic trend, according to the bank’s economists.

Ways to position: 

Subramanian suggests going long inflation-protected yield (OW Energy & Financials). After lagging for years, Hartnett prefers inflation assets to deflation assets and believes we are at the start of a secular


bull market

in commodities. Francisco Blanch sees Brent heading to $120 a barrel by mid-2022, from around $90 right now, and falling to an average of $80 in the second half. A weaker dollar could support crude at near triple digits, Blanch said.

3. Business capex cycle: A handoff from consumers to corporates

A capex spending boom will be driven by strong corporate balance sheets, above-trend US growth, continued tech evolution, and reshoring, among other factors.

Ways to position:

Subramanian suggests going overweight US small caps which are more exposed to US capex than large caps. Industrial automation stocks and equipment rental stocks are among the other areas with exposure to the theme.

4. Low-income consumer slowdown in the US & elsewhere

Lower income consumers to be negatively impacted by high prices for many items, from groceries to gasoline, a lapsing of stimulus & depletion of savings. 

Ways to position: 

Subramanian is underweight consumer discretionary. BofA Global Research analysts are generally negative on retailers with outsized exposure to lower income consumers including dollar stores and some sporting goods retailers. The US staples team has suggested that higher prices will also lead to consumers trading down as they look for more value on their shopping list.

5. US exceptionalism

The US will grow faster relative to trend than the rest of the world due to more stimulus, more inflation, and more infrastructure spend. 

Ways to Position:

US small caps are more exposed to US GDP than US large caps and relatedly, US small caps also benefit from the expected US capex boom. US energy prices, especially nat gas prices, will likely remain well below prices elsewhere in the world, putting energy consuming US industries like chemicals is a better competitive position.

6. China slowdown & policy choices boost Asia ex-China

As China growth remains sluggish, some multinationals expect a slowdown, and foreign investors turn to areas of Asia outside of China.

Ways to Position: 

Ajay Kapur has pointed to his preference for Asia equities outside of China and his preference for non-Chinese Asia tech stocks.

7. Easing of supply-chain bottlenecks

Supply-chain issues to persist, but will become less severe, the bank said. Inventories should come off their recent lows leading to discounting in certain areas, but also better demand in others as production rises.

Ways to Position:

BofA analysts have suggested an easing would be a positive for supply constrained areas of the economy like auto production, benefitting auto manufacturers and suppliers, including some semiconductor companies. An easing of labor constraints could benefit restaurants and transportation companies.

8. Value equities to outperform 

Peak


liquidity

and higher real rates pressure popular retail & high growth trades, market focus shifts back to value.

Ways to Position:

Own value-oriented sectors and value factors given the expectation for higher real rates as it gets later in the cycle and given the dramatic outperformance of growth versus value over the last three years.

9. Greater attention on climate change, ESG, & efforts to cut carbon intensity

Falling prices for renewable technology, green infrastructure spend and relatively cheap financing to drive a shift to renewables and lower carbon solutions, Bank of America said.

Ways to Position:

$1 of every $3 of global equity flows went into ESG funds in 2021. As ESG investors evolve their approach and invest in companies with improving ESG credentials, investors should be cognizant of where positive ESG change is happening.

10. Digital asset adoption

Digital assets are now a multi-trillion dollar market with the market value of all tokens peaking at $3 trillion in November 21. Blockchain tech & blockchain-enabled applications have implications across every industry. The bank’s analysts said they expect the digital asset ecosystem to develop rapidly and companies to increasingly incorporate blockchain tech into their businesses.

Ways to Position

Companies are still early in the meaningful adoption of blockchain technology. The bank’s strategists suggest investors target stocks that may see market value expansion due to digital asset exposure across banks, chemicals, data centers, gaming, internet, IT hardware, media, payments, semis, software, transportation and utilities.

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