LONDON (Reuters) – BlackRock, the world’s largest asset manager, has upgraded U.S. equities to “overweight”, turning bullish on quality large cap technology companies as well as small cap firms that tend to perform well during a cyclical upswing.
The asset manager said it prefers the United States as it “boasts” a higher share of “quality” companies with strong balance sheets and free cash flow generation in the high-flying tech and healthcare sectors.
The resurgence in virus cases in Europe and the United States could led to further outperformance of large cap tech and healthcare companies, it added.
In turn, BlackRock turned bearish on Europe.
In a note on Monday, BlackRock said it downgraded European equities to “underweight”, just three weeks after cutting allocations to “neutral”. It cited the region’s high exposure to financials.
“We prefer avoiding more structurally challenged cyclical exposures. We have downgraded European equities to underweight,” Mike Pyle, global chief investment strategist at the BlackRock Investment Institute, said in a note to clients.
“The European market has a relatively high exposure to financials, which we see pressured by low rates.”
Depressed by years of loose monetary policy, European banking stocks were among the worst losers of the COVID-19 March market crash and have since recovered only a little more than half of those losses. Most of that came after Pfizer’s positive vaccine update earlier in November.
On the other side of the pond, the financial sector represents a relatively small slice of the main indexes.
Reporting by Thyagaraju Adinarayan; editing by Sujata Rao and Dan Grebler