BlackRock trims fixed income exposures with rising risk appetite
BlackRock has rebalanced its model portfolios to trim its fixed income exposure and is now leaning into risk assets.
With the tactical rebalance, the asset manager said the decision was supported by fading uncertainty around the US election, ongoing economic resilience, and positive corporate earnings.
Speaking to Money Management, director of wealth distribution James Waterworth said: “We’ve just passed the US election and you well know that markets don’t like uncertainty, so that’s certainly removed that one piece. Now [investors] are looking with a clearer lens, having greater confidence in the election outcome.”
He outlined the focus now returns to the US Federal Reserve’s path ahead with interest rates, in what many are forecasting to be a higher-for-longer environment to combat persistent inflation.
Looking at BlackRock’s model portfolios, Waterworth explained the fund manager has trimmed its defensive fixed income exposure to adopt a more granular and active approach. Specifically, it trimmed its exposure to global bonds in expectation of higher term premia, preferring global high yield credit given ongoing economic resilience.
“We were underweight leading into the election and post that rebalance, we’re now even further underweight,” he shared.
Further disinflationary pressures also drove a preference for Australian nominal bonds.
The proceeds of this move away from fixed income has been used to move overweight equities.
“That speaks to that confidence in the market,” he said.
Additionally, the rebalanced portfolios demonstrate a preference for gold over fixed income, which BlackRock attributed to gold’s “unique diversification characteristics and favourable supply-demand dynamics”.
Looking ahead, the asset management giant forecasts US equities will be supported through 2025 by solid earnings growth, as well as a broadening of the AI-driven rally beyond the tech sector.
More broadly, regional equity tilts in the portfolios see a larger position in US equities over that of European and Australian equities, paired with a slight increase in emerging market equities on the back of improved earnings momentum and relatively attractive valuations.
“That broadening out of the rally, if you will, has also been seen through flows to US mid-caps and small caps,” Waterworth said.
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Rhea Nath
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