- Nigel Bolton is co-chief investment officer of fundamental equity at investing giant BlackRock.
- He said investors are going to have to be “very specific, very differentiated” with stock picks.
- Bolton said BlackRock has a lot of research analysts working on metaverse investing ideas.
While there are many people who have views on the stock market they are happy to share, they are not all equally well qualified to do so.
As we enter a year in which there are major uncertainties over how markets will respond to the expected ending of the pandemic, inflation and interest rate rises it will be important to be picky about who you listen to, as well as what you buy.
At the top end of the list of those it would be smart to pay attention to is Nigel Bolton, co-chief investment officer of fundamental equity at the world’s biggest asset manager, BlackRock.
One part of the market that Bolton sees as offering good opportunities right now is related to the the boom in interest around the metaverse and Web3, the decentralized internet.
Blue-chip money managers such as BlackRock are not buying crypto tokens, but they are looking for ways to get exposure to the trend through the stock market.
There are a few obvious options, such as buying crypto exchange shares as and when they float on the market, with Coinbase being the prime example of this. Another option is buying Meta shares, formerly Facebook, if you believe that Mark Zuckerberg can successfully pivot his giant company towards making money from virtual worlds rather than ads on its social network website. The jury is very much out on this though.
Bolton has another play in mind that is not so obvious; luxury goods makers that can sell digital versions of their high-end items within these new virtual worlds.
"It's a fascinating area," Bolton said. "We've got a lot of our research analysts are working on it at the moment. From our perspective, there are companies that are providing the the picks and shovels if you like, the technology around it. Whether it's virtual glasses, virtual headsets or the like, or actually providing the software that allows things to run and allows companies to to leverage that."
"There are different ways of playing the metaverse. We're seeing, for example, some of the luxury goods companies now who are looking to utilize the metaverse. If you want to have your avatar clothed in some luxury goods, you can now do that with some of them, they're now starting to have that kind of impact."
"So, it's a real thing. It's definitely a demographic thing here. I'm certainly too old for it, but I can see it in my kids and I think it's fascinating how this is going to transition."
Examples of luxury goods makers that are already targeting this new revenue stream are British brand Burberry, French luxury giant LVMH Moët Hennessy Louis Vuitton, Italy's Gucci and US brand Ralph Lauren.
Indeed, Bank of America estimates that the market for luxury-good digital collectors' items - in the form of non-fungible tokens - could help generate $55 billion in revenue by 2030 for the high-end retailers that dive into the metaverse.
"Image is everything in virtual experiences," they said. "Luxury brands are exploring a number of collaborations with gaming and metaverse platforms," investment bank Morgan Stanley said in a recent note.
Turning to the wider market and Bolton, whose fundamental equity team oversees $281 billion of the firm's colossal $9.5 trillion in client money, sees 2022 as a potential boom year for good stock pickers. While the back end of 2020 through 2021 has seen a strong tide of Fed money printing lift all ships, 2022 is set to be a different animal.
"I don't think a lot of people have appreciated the impact inflation can have on companies," he said. "Now that can have a negative impact and it can have a positive impact as well. And that's why we're saying above all else, this year is going to be a stock picking year."
"You're going to have to be very specific, very differentiated with what you're investing in. This is not the environment we've had for the last few years, where we've had very easy and supportive monetary policy from central banks, which has really pushed all asset prices up. Now we're seeing central banks starting to taper, and we're seeing rates rising very slowly in the developed markets."
"You need to have companies that can deliver earnings on their cash flow and higher forecasts for their earnings going forward," Bolton continued. "And it's not a surprise that what we've seen in the market over this last few months, some of the very expensive, high price to earnings type names particularly in the US, have come under pressure."
Despite making profitable stock picks becoming trickier, Bolton still considers the overall environment to be relatively good for equities.
"So when you drill down a little bit more to that I think it's important to just put into context where we've come from and one of the reasons that we are positive on equities is that we do think the world has changed now from the environment of recent years."
"We've really had a deflation environment for the last two or three decades and that's been partly responsible for the bull market that we've had in bonds for the last 40 years, effectively from peak interest rates globally in the early 1980s. The control of inflation that we've had for the previous 20 years has led to the bull market in bonds."
"I think that period has come to an end. You've also got a period now, where government debt in developed markets across the world is at record highs," Bolton continued. "So that means that from an overall risk environment, central banks will need to ensure that interest rates actually don't go up that much."