US to gain 30% over next year, says BlackRock's Doll

BlackRock’s Bob Doll has reintroduced an element of cyclicality into his portfolios, identifying historically low price to earnings ratios and bond yields as offering a compelling investment opportunity.

The cyclical opportunity

Doll, who is chief equity strategist at BlackRock, said: ‘We remain in a global cyclical recovery and the probability of a double-dip is low.

'Technically we’ve been through a nasty correction and there are a bunch of global cyclicals which are down by double and those markets imply a double-dip. However, my view is to buy into companies with cyclicality. The cynics would say “be careful not to catch a falling knife” – but in weakness comes opportunity.’

Doll also believes the huge quantitative easing programme will help stimulate growth.

‘The fiscal stimulus in the US was gargantuan – much bigger than in the rest of the world. As a result, we will see better growth there.’

To tap into this view, he has increased the beta in his BlackRock US Dynamic fund and his Luxembourg-domiciled US Flexible Equity fund from 98 to 106. He has done this by buying into the industrials, materials and energy sectors. He has also increased his exposure to the technology, healthcare and consumer growth sectors.

Historical justification

Doll draws on historical evidence to justify his move into cyclicals. ‘Price-to-earnings ratios are at their lowest levels since the 1980s and corporate bond yields at their lowest since the 1950s. Only 3% of the time have equities been cheaper than this and the last time it happened we saw a subsequent 12-month return of 27%,’ he explained.

He accepts the US debt position is as bad as it has been in 100 years on a consumer and state level. However, he does not expect the world’s largest economy to default on its debt, highlighting that the dollar is still the world’s reserve currency.

He also points out that the US still has the power to service the debt: ‘Despite debt being a problem, it is a backburner rather than a frontburner. Interest expense is not a major problem, the US can still afford to service its debt.’