The winning themes of 2023 could mature and keep climbing next year, BlackRock says
Investors don't need to abandon the themes that worked in 2023 just because the calendar is about to change, according to BlackRock. The asset management giant released its 2024 thematic outlook on Wednesday, highlighting some top ideas that have already proved successful. They include artificial intelligence and health care, two themes that have produced bright spots in what has been a bifurcated market over the past 10 months. "With $6 trillion sitting on the sidelines, clearly investors are happy to take 5% yields on cash and have been a bit hesitant to take on thematic exposures. But what we look for in our thematic outlook is not just what are the most compelling long-term themes, but what are the most compelling long-term themes that are going to reach new catalysts in 2024," Jay Jacobs, the U.S. head of thematics and active equity ETFs at BlackRock, told CNBC. AI Excitement around AI has fueled big years for megacap tech stocks, like Nvidia and Microsoft . Jacobs said that 2023 could prove to be a "year of training" for AI but that the benefits could broaden out going forward. "What we're looking more towards is what are the small and midcap pure-play AI names that are involved in that AI ecosystem but haven't yet enjoyed that same high level of return," Jacobs said. That could include other semiconductor and networking stocks to help build out technological infrastructure, and other areas where AI is allowing new economies to be built, Jacobs said. IShares has a broad AI fund — the iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) — that is up 26% year to date. The Global X Artificial Intelligence & Technology ETF (AIQ) , which has a higher weighting for Nvidia and some other megacap stocks, has gained more than 44%. IRBO YTD mountain This broad iShares ETF focused on AI and automation has outperformed the S & P 500 year to date. Jacobs said investors could also look at sector funds, such as those that focus on semiconductors, to get more targeted exposure. Health care Health care is another area that has produced some big winners in 2023, with pharmaceutical companies delivering breakthroughs in treatments for weight loss and Alzheimer's. The business impacts of those new developments should become more clear next year, Jacobs said. "We see 2024 as really the mass commercialization of those drugs as we see aging populations really starting to take hold in the United States," he said. But while individual stocks like Eli Lilly and Novo Nordisk have soared, many health-care ETFs have struggled in 2023. The iShares Biotechnology ETF (IBB) is down about 10% this year. The VanEck Pharmaceutical ETF (PPH) is roughly flat in 2023. Emerging markets Another area of focus of the BlackRock outlook is emerging markets — especially those that benefit from the "rewiring of supply chains," Jacobs said. Two markets that the firm highlighted were Mexico and India. BlackRock's report shows that investors have less than 1% exposure to the themes of Mexico and India, based on an analysis of more than 20,000 investor portfolios. Mexico stocks, as measured by the iShares Mexico ETF (EWW) , has been a strong performer this year with a total return of 25%, according to FactSet. The iShares MSCI India ETF (INDA) has lagged behind that, with a total return of about 8%. A competitor fund, the WisdomTree India Earnings Fund (EPI) , has performed better in 2023 with a total return topping 15%.