BlackRock CIO says stock picking will be a key theme for 2022 — and explains where to look

LONDON — Stock picking is going to be more important for investors than macroeconomic themes in 2022, according to BlackRock‘s Nigel Bolton.

Markets continue to grind higher against a backdrop of uncertainty, and developments on the Covid-19 front, global supply chain problems, persistent high inflation and potential monetary policy tightening from central banks remain key downside risks going into the new year.

Stock markets had led a broad bull run for risk assets over the past 18 months, although the emergence of the new omicron Covid variant recently resurfaced some volatility. Bolton suggested that while the outlook for stocks in 2022 will be more challenging, they will continue to eke out gains so long as real interest rates remain negative.

“That is going to be the key here for, I believe, many many years to come, and that means that I think you still want to be tilted towards risk assets and equities as part of your portfolio, but you have to have much more realistic expectations in terms of amount of return that you are going to get over the next 12 months,” Bolton, who’s the co-chief investment officer of BlackRock’s Fundamental Equity Group, told CNBC’s “Squawk Box Europe” from the Edelman Investor Summit in London on Thursday.

BlackRock expects equities to provide high single-digit returns over the next 12 months, a more modest environment than the rally seen since the start of the pandemic recovery.

Bolton argued that instead of continuing to focus on the value or recovery trade, favoring certain sectors such as financials or energy based on their low valuations and alignment with the economic resurgence, investors will need to take a more nuanced approach in 2022.

“Some of the larger, more incumbent oil companies will be able to change and may have a quite reasonable future from valuation levels that potentially look optically attractive,” he said, adding that there will be “winners” and “losers” within all sectors across the market.

“That is why I think the theme for next year is going to be stock picking. It’s going to be a good market, I believe, for individual stock pickers, less so for top down macro theme guys.”

Supply chain management

Supply chain disruption has been a key concern for companies around the world as resurgent demand outstrips a recovery of supply in light of economies reopening. Bolton said companies that have a diversified supply base, and have treated their suppliers well over the past few years, have shown greater ability to maintain functioning supply chains through tough periods.

“They are actually benefiting in this environment, and I think that environment is going to continue to be a little bit challenging for some time yet, so that diversification of supply is going to be really important,” Bolton said.

“We have moved away from the era of ‘just in time’ to now it is ‘just in case,’ and that will mean slightly higher cost, but I think if you have got that good management control and diversification of supply, you can still do really well in this environment. “