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    The reason we've seen such a big reversal this year, or at least one of the reasons, I think comes down to valuation. So you think about what happened in 2013 and even 2012 was that you had a lot of very strong trends. People bought equities. They bought particular types of equities, such as small caps. They piled into high-yield bonds. And what happened was that, through the course of the last 18-24 months, many of those asset classes got very expensive. You know, small caps are a good case in point.

    And as we got into 2014, once there was a little bit of volatility in the market -- as there was in January, then later again in May -- you saw people leaving those asset classes. In other words, they were looking at something like U.S. small cap or U.S. biotech and they were saying, "Huh. If the momentum has been broken, it's not clear that I want to pay as much as I'm having to pay to buy that asset." So, as a result, people were looking for what I call "relative value." And the reason I emphasize the word "relative value" is that there aren't that many asset classes today that are cheap.

    So to my mind what this implies for investors are a couple things, the most important being many of these relative value trades are likely to continue to do better in the back half of the year -- so looking for asset classes that did not run up as much in 2013 or 2012 that offer better value. Some of the examples of that would include, in the United States, large-cap companies, which are generally cheaper than small-cap companies. Another example in 2012 and parts of 2013: many defensive companies in the U.S. did well.  Utility companies is one example -- companies that offer high dividend and a lower volatility. Rather than pay up too much for those, investors may want to consider more cyclical companies, which are both cheaper and will also benefit as the economy strengthens in the back half of the year.

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Investing involves risk including loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. The opinions presented are those of Russ Koesterich, BlackRock's Chief Investment Strategist, as of May 29, 2014 and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or made investment decisions that may, in certain respects, not be consistent with the information contained in this presentation. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this presentation are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance does not guarantee future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the viewer.

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