The world's largest asset manager is standing by its bullish outlook for US equities across its $220 billion model platform as geopolitical tension roils asset classes.
BlackRock Inc. is maintaining its 3% overweight positioning on equities, according to an investment outlook viewed by Bloomberg. That level is unchanged from November's model rebalance despite the war in Iran and rising concerns over both artificial intelligence spending and the technology's disruption potential.
Instead, the firm is looking to reallocate risk in what it sees a still attractive setup for stocks, thanks to earnings growth, a "solid" economic backdrop and a high conviction in AI.
As such, billions of dollars flowed between corresponding BlackRock exchange-traded funds on Thursday, data compiled by Bloomberg showed, as the models shifted from overweight bets on the largest companies in favor of "underappreciated stocks."
"The portfolio remains positioned for growth while adding exposure to a broader array of stocks with underappreciated or improving fundamentals – often supported by the deployment of AI," Michael Gates, lead portfolio manager for BlackRock's Target Allocation ETF model portfolio suite. "This is a refinement of positioning, not a retreat from equities."
Model portfolios, which package together funds into ready-made strategies to be sold to financial advisers, have soared in popularity in recent years.
Bloomberg Intelligence estimates that $3 trillion currently sits in model portfolios, representing roughly 22% of overall ETF assets. BlackRock controls more than $220 billion in these models, up from $150 billion last year.
As part of the latest "refinement" of the equity positioning, BlackRock's nearly $700 billion iShares Core S&P 500 ETF (IVV) posted $8.2 billion worth of outflows in the most recent session, in addition to a $7.7 billion withdrawal from the iShares S&P 100 ETF (OEF).
The actively managed iShares Large Cap Core Active ETF (BLCR) absorbed $3.3 billion — a record influx for the fund — while the iShares MSCI EAFE Growth ETF (EFG) and the iShares Russell 1000 Value ETF (IWD) recorded inflows of $1.7 billion and $1.6 billion, respectively.
The model adjustments also extended to fixed-income. The iShares US Treasury Bond ETF (GOVT) took in a record $3.4 billion, while the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) lost $1.1 billion and nearly $900 million combined drained from a pair of the firm's high-yield corporate bond funds.
Tight spreads in corporate credit offer "limited compensation for risk," leading BlackRock to trim its exposure in favor of government debt, according to the letter.
"Rather than expressing a defensive macro view, we are repositioning fixed income to play a more traditional ballast role — swapping credit for longer duration government bonds," Gates wrote.
(Shutterstock)
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