BlackRock Model Portfolios

Hi, I’m Uwe Helmes - lead strategist for the Model Portfolio Solutions business in Australia.

I’d like to share with you a quick overview of the recent market developments, key performance drivers and latest tactical positioning within the Enhanced Strategic Model Portfolios.

The portfolios continue to perform strongly despite the market volatility in the first half of the year.

We’ve witnessed some very sharp market swings, record breaking intra-day moves, deleveraging activity by major hedge funds, and significant rotations within and across markets.

US government policy – and in particular announcements around tariffs – have driven most of the volatility this year.

Tariffs and other trade restrictions have certainly rattled investors, arousing fears of higher inflation, slower economic growth, or worse yet both high inflation and weak economic growth at the same time, which is called Stagflation.

Markets don't like uncertainty and recent events have widened the range of potential outcomes.

While this uncertainty is uncomfortable for many investors, it also creates opportunities.

We believe our granular, diversified and dynamic approach to portfolio construction is well suited for this environment.

For example, the portfolio’s targeted and more defensive exposures, such as inflation-linked bonds, gold, listed infrastructure and the Minimum Volatility factor were key diversifiers during the market turmoil in early April.

Since then we have made some portfolio changes and different exposures such as European equities and Emerging Market equities have kicked in and delivered strong positive returns.

Overall, the Enhanced Strategic model portfolios continue to perform well and achieve 1st or 2nd quartile performance over most major time horizons as per the Morningstar Peer rankings.

While we are pleased with the strong track record, we want to continuously evolve the portfolios and stay ahead of market developments.

As such, we conducted a portfolio rebalance on the 16^th of June to reflect our latest tactical views.

Here are some of the key highlights of this rebalance:

First, we maintain a fairly neutral growth/defensive split. Ongoing uncertainty in markets leads us to hold the portfolio’s growth exposure steady as we await further clarity on policy, geopolitics and macro developments.

Second, we re-calibrate the portfolio’s regional exposures. We take profits on European and Australian equities following their strong year-to-date performance. We use this capital to further increase the portfolio’s exposure to Emerging market equities, where we are seeing a more favourable earnings outlook and attractive valuations.

Third, we increase the portfolio’s currency hedge ratio in order to be less exposed to adverse currency moves and to better protect the value of the portfolio in case of a weaker US dollar.

Within fixed income, we maintain a granular and active approach to selecting the desired exposures.

We prefer Australian government bonds over global bonds, given an expectation for further rate cuts by the RBA and a preference for non-US dollar denominated assets.

Meanwhile, we slightly increase the portfolio’s exposure to Emerging market debt and global high yield credit.

Finally, we continue to like infrastructure and gold as portfolio diversifiers and hold on to slight overweight positions in these asset classes.

Thanks for watching.