BlackRock’s Koesterich: International equities will counter 2014 volatility

With expectations that volatility will increase this year, BlackRock chief investment strategist Russ Koesterich stresses the need to diversify into international stocks.

After “unusually low” levels of volatility in 2013, the onset of QE tapering from the US Federal Reserve this year will likely see market volatility “climb to levels that are closer to long-term averages, according to Koesterich.

“While we still think stocks will post gains this year, those gains will be accompanied by more ups and downs,” he adds.

Against this backdrop Koesterich reinforces the need for diversification into international names, particularly within the US market.

Investors have flocked to US equities with an increasing focus on domestic-facing names as the US economy shows signs of recovery.

However Koesterich believes that investors should look beyond the US market to global stocks with exposure to Japan and Europe.

“For those investors who have been overly focused on U.S. stocks, we would suggest increasing exposures to international equities— specifically to the other large developed markets of Europe and Japan,” he says.

“In fact, we would recommend overweight positions to both of those regions.”