The macroeconomic environment has become increasingly important to equity markets in recent months. Inflation remains elevated, and rates have risen substantially as the Fed begins to hike and prepares to shrink its balance sheet. Oil prices have also risen due to supply constraints. Finally, cross-asset volatility is growing, with fixed income signals becoming more important to equity returns.
To help clients navigate this backdrop, BofA Securities offers proprietary macroeconomic equity custom baskets. These allow you to obtain high, low, or neutral exposure to macro variables like interest rates or inflation while controlling for systematic risks. For example, to benefit from rising rates, you may think to buy a financials ETF. However, this position would include substantial industry risk. By contrast, a bespoke basket from BofA provides higher, more targeted exposure to interest rates while maintaining the systematic risk profile of a benchmark like the S&P 500.
These baskets can be customized to gain either positive or negative exposure to a suite of factors and exclude specific names or M&A and meme stocks. Most importantly, we build in individual stock liquidity and borrow cost considerations, ensuring that these baskets are tradable. Contact your sales representative for more details.
For more actionable ideas, check out the rest of our Trader Insights series.
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