BlackRock Model Portfolios

Hi, I'm Uwe Helmes, Lead Strategist for the Model Portfolio Solutions business in Australia.

On the 15^th of September, we conducted a tactical rebalance of the Enhanced Strategic Managed Portfolios, and I'd like to share some of the key changes we made.

Before discussing the rebalance, it's worth recapping some recent market developments and performance drivers.

Despite several bouts of volatility this year, most sharemarkets have delivered positive returns.

Markets have been supported by resilient economic activity, strong corporate earnings, and continued enthusiasm around AI and related investment themes.

US equities have continued to advance and remain near all-time highs. The latest earnings season once again delivered strong results, with most US companies exceeding expectations.

Large technology companies remain at the centre of the AI investment cycle. Hyperscalers continue to invest heavily in data centres, cloud infrastructure and AI capabilities, with capital expenditure plans continuing to expand.

Importantly, the benefits of AI are no longer limited to the largest technology firms. We're increasingly seeing opportunities emerge across the broader ecosystem, including semiconductor manufacturers, hardware providers and other enabling technologies.

Beyond the US, market performance has become more balanced across regions.

European equities have stabilised following a softer period earlier in the year, with improving corporate earnings and signs of a more resilient macro backdrop across the Eurozone.

Australian equities have also delivered positive returns, although performance has generally lagged global markets. Recent domestic earnings results were mixed and, overall, weaker than those of global peers.

Fixed income markets have faced a more challenging period as government bond yields moved higher across many developed markets. Rising energy prices, persistent inflation pressures, and increased competition for global capital have all contributed to upward pressure on long-term yields.

Against this backdrop, the Enhanced Strategic Managed Portfolios have continued to deliver strong outcomes for clients through a diversified and risk-aware approach to portfolio construction.

Looking ahead, we made a number of changes to reflect our latest tactical views.

First, we maintain a broadly neutral balance between growth and defensive assets. While we remain constructive on the medium-term outlook, we also recognise several risks, including higher interest rates, geopolitical uncertainty and elevated equity valuations.

Within equities, we continue to lean into the AI theme, but in a more targeted way.

We retain a preference for US equities to gain exposure to hyperscalers and key beneficiaries of ongoing AI investment, while also maintaining exposure to hardware and semiconductor manufacturers across parts of Asia that continue to benefit from demand for AI infrastructure.

From a factor perspective, we're tilting more towards Value exposures, which we believe complement the existing AI-related holdings and provide additional diversification. We are gaining this exposure through the iShares U.S. Factor Rotation ETF.

We have also neutralised the previous underweight position in European equities, reflecting improving earnings trends and stronger sentiment across the region.

From a currency perspective, we’ve increased the hedge ratio and lowered the exposure to the US dollar to better protect the portfolio in the event of a weaker US dollar.

On the defensive side of the portfolio, we increased the allocation to cash. Higher short-term yields provide an attractive source of income while preserving flexibility to deploy capital as opportunities emerge.

Finally, we continue to hold gold as a strategic diversifier and see favourable supply/demand dynamics as a tailwind for the precious metal.

Overall, our approach remains focused on maintaining balance, managing risk and ensuring portfolios are well positioned to capture emerging opportunities.

Thanks for watching.