Systematic investing

Q3 2023 Decoding the Markets - Soft landing: Too good to be true?

MUZO KAYACAN: Hi, I'm Muzo Kayacan, Portfolio Manager within BlackRock Systematic Active Equity Team, and also Head of Product Strategy for EMEA, and this is the latest edition of our Decoding the Markets webcast. I'm joined today by Raffaele Savi and Jeff Shen, BlackRock Systematic Active Equities CIOs, and also, Yaki Tsaig, one of our research scientists focused on AI and machine learning.

We're going to kick off by taking a look at what the market is telling us about the economic outlook. Then, what our data is telling us about the economic outlook. And then we'll hand over to Yaki, who will talk a little bit about AI, what it means, and what the implications are. OK, over to you, Raf and Jeff. What's the market telling us about the economy? Recession? Hard landing? Or soft landing?

RAFFAELE SAVI: Thank you, Muzo. And we've been at it for a few of the last DTMs in some sense, trying to understand where we are in navigating this unusual economic cycle. And want to share with you some work we've done on market regime analysis. If you want, this is a classic scenario analysis work where we try to describe different scenarios and represent them, in this case, with industry returns.

So the four scenarios that we found did a pretty good job in describing market variations in the last few quarters are these four represented on this slide. In a nutshell, you don't need to see all the details, but the very hard landing is a scenario in which you have both growth and inflation sort of dramatically falling.

This is probably caused by a Fed that has overdone it, and economic activity comes to a halt and consequences are pretty dire. There's a hard landing scenario, which is a scenario in which growth falls before inflation does. There is a slowdown. No major breakage in financial system or real economy, but definitely a clear recession.

And then the two scenarios with still sort of positive growth, if you want, are soft landing scenario where inflation does moderate and still we have positive growth and in some sense, positive returns to financial assets probably. And then the no landing scenario, you can think about it as stagflation. You can think about it as the economy running hot and central banks having to do more.

If we flip to the next slide, what you see, is that the market has been going back and forth. We've been using this sort of projecting back in time with industry returns trying to understand what were the market implied probability, where we are in the cycle through time. And the part I want to show you and focus your attention on, is sort of 2022 and the beginning of 2023.

Clearly, both scenarios that were sort of priced highly probable by markets then, were concerned in scenario. It was this tug of war between stagflation and a hard recession. The view was, inflation is out of control, the tightening cycle will have to go for a long, long time, things will break. And then of course, 2022 in terms of returns, was very hard pretty much everywhere across the space. Equities, fixed income, alternatives.

And so you're looking at a challenging market environment, a market where concerns are dominating. And that's how we came in 2023. This idea was that either the Fed would have to keep on rising and things would break. The mini banking crisis in March seemed to be a confirmation of this. Or inflation wasn't going to come under control.

And then, the last six weeks have been quite remarkable in how markets imply probability have changed. So soft landing out of nowhere sort of came out as what's mostly implied by markets. And you heard all these stories about markets climbing a wall of worries, we'll look at some of those concerns in a little bit. But it's been quite stunning sort of turn in terms of what's priced in in markets.

And the final slide I'm going to comment on if we flip one more, is how does it look like if we're thinking about different dimensions. So as I was saying, those previous implied probability come from sort of cross-sectional industry returns. And we have other ways of looking at what's implied.

You can look at returns at the stock level. You can look at valuation spreads. You can look at hedge fund positioning. And again, what I was-- sort of what I want to attract your attention to, is this fact that also on this dimension we've seen sort of soft landing becoming the dominant theme in markets.

And I think it's really interesting that we enter 2023 with a lot of concerns, and almost none of these concerns played out in its worst possible ways. We've experienced a series of surprises that have been pretty much all on the positive side. Back to you, Muzo.

MUZO KAYACAN: Yes, great. So I think to summarize, ultimately, when we're looking at the different industry baskets, ultimately, investors have been buying the types of stocks that tend to do well in economic good times. Those types of stocks have become a bit more richly valued relative to their history. So investors are behaving in a way that implies that we're going to get a soft landing. They're showing a lot of optimism.

But ultimately, we're investors. We have a lot of access to our own data. So I'd be interested, Jeff, to get your perspective on what our data is telling us. Is this real? Is there information that we have access to that suggests that inflation is naturally going to come down? There are plenty of bright spots in the economy?

JEFF SHEN: Absolutely. I mean, I'll say that Raffaele and I were chatting about this over the last few days, and I think one reflection that we have in general, is that given how unconventional this cycle has been, we haven't seen a pandemic, and also the global policy responses in relation to that for a long, long, long time.

And such that the traditional economic model, in terms of how we think about the world, certainly has been deeply challenged, just given how unconventional this cycle has been. And to Muzo's point, I think we've been focusing a bit more on a data-driven approach. So I think at the end of the day, I think we are led by evidence, we are led by data.

So here are going to be four or five vignettes, if you will, of the different types of data that we are tracking that's actually confirming a bit of what Raffaele was setting it up at the overall macro outlook. So I think the first one is a bit more macro policy-driven. Clearly, inflation is on people's mind. And what we're doing here, is actually the top chart over here, essentially is looking at a bit of a online pricing data.

So these are the things that people-- a lot of shopping, a lot of consumer activities are done online, and we're looking at web-related inflation numbers. And you can see that since the beginning of this period of 2019, it tracks the overall consumer pricing, and also the inflation picture quite well. There's a bit of a leading behavior to that by the order of three to six months, just given how high frequency this data is.

And you can see that if you track the latest-- the red line over here on the top, it is trending downward a bit. So this actually consistent with this broader trend that inflation is actually moderating. The online pricing is giving us a bit of a confirmation that is the case. And clearly, the broker, the sell side community is also responding accordingly.

While if you go back to even six months or 12 months ago, when you look at the broker reports, and if you do a bit of a natural language processing on the broker report, the mentioning of inflation and the concerns around inflation is certainly very high. And you can see that the dot number has also been dropping at a pretty rapid pace.

And it's also not only in the US, it's really in the broader developed market, you can see that the inflationary concern is actually easing. So that gives you a bit of a sense of to what Raffaele was talking about earlier in terms of the overall potential for soft landing from an inflation picture. There are some confirmation.

So next, we're going to switch gears a little bit looking at how corporate sector are responding to the overall macro picture. So this is, if you will, a bit of a bottom's up view of where things are. And the first one what we're looking at, is certainly on the inventory growth, just to get a bit of a sense of in the US, for example, are people growing their inventory a lot, or people are actually getting the inventory to go down. And there are actually some signs of the inventory growth is actually moderating.

You can see that in the beginning of the pandemic, people are certainly stocking up quite a bit. It's very-- the economy is essentially clogged. And that, certainly given some of the supply chain issues in terms of where geopolitics are, the inventory certainly has been growing quite rapidly. We're actually, I mean, if you look at through different quintiles, things are starting to moderate. So there are signs of vitality, there are signs of dynamism in the economy that give us some signs of hope.

On the other side, on the labor side, clearly, that's going to drive quite a bit of a wage inflation. And here what we're looking at, is certainly also looking at how often companies themselves mentioned layoffs either through conference call transcripts that they put out, or through some of the layoff news.

And again, six or 12 months ago, especially in the depths of 2022, where the overall market look a bit barren, I mean, you can start, you can see that overall, there was a lot of news of layoffs. And that trend has actually come down. So I'll say both from a labor market and also from a inventory perspective, there are some signs of normalization.

So next we're going to look at a couple places where there were a lot of worries. So you just need to walk around San Francisco to realize that delinquency or office closed and retail shops are actually under a lot of pressure. I mean, you can see that there are a lot of signs of scarring from the pandemic.

And I think that's very much the case. If you look at the top right chart, when you look at the delinquency, there's certainly quite a bit of issue. The retail has not recovered. It's still on pretty high delinquency rate. And the red line here also shows that office clearly, there are lots of signs of fragility there. And our view that looking at some of other data, just look at whether it's remote work policy, the lower right chart--

This is Stanford has actually done interesting work there with tracking some of the data, you can see that whether it's employer or employees, there's a sense that the remote work is here to stay. Certainly not nearly as-- at the level that we've seen in the pandemic, but some element of this flexible work is here to stay--which would certainly have issues with downtown office occupancy, alongside with traffic, with thinking about retail in downtown. So I think I'll say that overall, there is a bit of a worry on real estate. It seems to be a bit more concentrated in retail and office. And I think some of these trends are here to stay.

The other side of the negative that's being certainly in the chatter, is next page, which is certainly geopolitics on China, certainly is front and center. You just need to open any newspaper. There's always going to be one or two negative news on China. And I think that negative sentiment certainly has also been reflected in the market pricing.

There's also a bit of a sense of the reopening in China is not nearly as rigorous as people have expected. So market has responded to that. I think that's very much similar to what we've seen from a bottom up data perspective. I'll say that the only thing interesting here, is that cross-sectionally, underneath that broader negative sentiment, cross-sectionally there is a lot of variation.

So if you look at the job posting that we track across different industries, you actually see that the job posting in the more defensive stable industry, like utilities, start to declining. And then you look at internet, which certainly has been under a lot of regulatory scrutiny, is actually starting to see a bit of a signs of life from a job posting perspective.

So some of these leading indicators give us a sense of there's a lot of cross sectional moves. So not all things are bad, but there is a lot more cross-sectional opportunity. And that's also the same thing when we look at high frequency online sales across different segments.

You can see that people are not buying too much furnitures, but when it comes down to some of the more luxury goods, there are some signs of life. And that's also, when you look at the International names that are exposed to the Chinese consumers, I think there are early, some early signs of life over there. So lots of cross-sectional opportunity, even though the broad picture is reasonably negative.

And now we're going to switch gears a little bit before we hand it over to Yaki to talk about what's exciting in AI, how we, in Systematic are using AI. Clearly, AI has been a big theme in the market. All of you guys listening to the call probably have heard or played around with ChatGPT in some form or fashion. And I think there are a few data that we look at, I think that's hopefully of interest.

One is, there's been a lot of talk around how market is concentrated, whether it's top seven names or top 10 names, et cetera. So what we're looking at is-- the top left chart basically is looking at the concentration of the market, which when you look at the top seven names, clearly, there are big, big chunk of the overall market. I think a trillion dollar club seem to become more and more popular. So I think there's a bit of a sense of concentration in the market, for sure. Not as extreme as dotcom bust, but there's certainly moderately high.

And when you see some of these extreme returns, I think what's interesting, is actually that they tend to persist for a while. So I think for people who are hoping for a short-term reversal, I think the lower left chart essentially gives us a bit of a sense that they tend to persist for a while after some of these extreme returns. So I'll say that waiting for a short-term reversal of this big run-up in some of these names, we may want to look at in a bit of a more critical way.

I think the lower right chart is really sort of going back to a little bit more our Systematic lens here, is really to say, OK, how are we similar or different compared to the dot com bubble, especially during the peak in 2000? And we have a nerdy way of doing it. You would not be surprised. We look at all the quant, regular sort of common quant features of these stocks in the technology sector, just to get a bit of a sense of how similar or how different they are compared to the dotcom.

And these quant features essentially measure valuation, measure corporate fundamentals measure some of the shorter term sentiment. And I think the interesting thing here, is actually the headline here on the lower right chart is essentially to tell us that they actually quite different from the dotcom bust. So when people worry about non-profitable, high valuation, junky names that was dominant around the dotcom bubble. That's not exactly what we're seeing today.

So I'd say that's probably one hopefully interesting insight here that even though there's a lot of worry, but I think at the same time, the fundamentals underneath it seem to be quite different from the dotcom. So this is sort of what we're seeing both from a macro position and also some of the data-driven perspectives. And before that, I'll hand it over to Muzo to see how we dig a little bit deeper into the generative AI world.

MUZO KAYACAN: Yeah, thanks for that, Jeff. And the messages I got were especially when we look abroad for variety of different data points, we're definitely seeing signs of normalization. Some things are cooling a little bit, but there's no sign of widespread collapse across the economy, and there are lots of bright spots in the economy.

And in terms of the market, it's difficult to escape some basic sayings that people have about things, and one of them is, what goes up must come down. Sometimes that's true in the long run, but what we don't know, is what goes up must come down, but it may be eventually and it might take a while. So that's-- I think that's definitely an interesting thing to think about as we now consider the details.

So, we've heard about some of the market moves related to AI. There's been a huge amount of excitement around it. Everybody's talking about it. I think some people are experts and they know what they're talking about. Other people are just sort of fascinated by it, maybe a little bit scared.

We do have a number of resident experts within in the BlackRock Systematic Active Equity team. One of those is Yaki, who has been, I know for a number of years, has been leading our efforts to harness AI and big data, and transfer those technologies into returns and alpha within portfolio.

So, Yaki, we talked about this excitement, we've talked-- we've thrown the term AI around. Hopefully, you're going to give us a bit more information. What do we really mean by AI, especially generative AI? And how has the technology evolved?

YAKI TSAIG: Yeah, absolutely, thank you, Muzo. You're absolutely right. The hype is real and a very valid question is, where is it all coming from. So let me maybe just start by setting the stage and defining what do we mean when we talk about generative AI. We talk about a group of models that produce what we humans think of as creative, open-ended content.

And all of these models have a very attractive, almost miraculous property. You take a relatively small amount of input, and this is natural language, a prompt, an instruction, a couple of lines of text, and those models yield in return, very rich output that we can often measure in minutes or hours of human labor.

So this could be an article, this could be dozens of lines of code, an image, and so on. And Jeff mentioned there was sort of a watershed moment when ChatGPT came out late last year and everyone started playing with it and realizing how impressive this technology is.

What's interesting is, that we've been seeing the same progress not only in language, but also in code and images and video and voice, and actually starting to look at scientific applications. Design of molecules and proteins and so forth.

That step function increase in capabilities is very interesting. And actually, for the general population, they've seen it-- they've really seen it as a step function, with ChatGPT coming out. But in the AI community, we've been watching these models for a few years. And the improvement has been kind of staggering.

So one particular benchmark that's very popular in the community is called MLLU. It's literally a combination of many questions from high school and college level examinations, across STEM subjects, humanities, social sciences. They're all structured as multiple choice questions. And they're given to these AI models and we measure the accuracy of their responses.

And so again, multiple choice questions. So if you just flip a coin, you'll get about a 25% accuracy. And you can see on this chart on the slide, that in 2019, that's really where we were at with GPT-2. Fast forward to March 2023 and GPT-4, which reached about 85% accuracy. Now, to set things in perspective, an average human would get about a 55% accuracy on these tests.

When we see these types of phenomena, we call that superhuman behavior. And it sounds scary, but worth digging for second into what that means. So let's take a chemistry professor as an example. And if we were to give them the full set of questions, they would likely do much better than GPT-4 on the chemistry portion of the examination.

However, that same professor might do poorly on the computer science, the medieval history, the legal parts of that examination. So again, we're seeing a lot of the capabilities coming with the-- from the very sort of vast, broad knowledge base that these models are trained on to make things more concrete.

A typical state of the art model is trained on the equivalent of hundreds of times of the entire English Wikipedia. So they absorb a vast amount of knowledge, and as a result, have sort of a very broad base to draw from. And I mentioned these other modalities. We're seeing the same level of progress with other fields, as well.

And here on the slide, we have a silly little example of a generation of pictures of a giraffe. Again, on a timeline. In 2020, you can sort of see some texture. Fast forward, 2023, a photorealistic generation. And beyond the implication for giraffe and giraffe art, the sort of important thing here, is that these models are going to start being able to interact with more and more real data. They're going to be able not just to generate visual data, but also to consume it.

MUZO KAYACAN: So, Yaki, that's great. A great overview in terms of the technology. But the key thing that everybody wants to know, is what are the implications? What does it mean for the economy? What does it mean for jobs? What does it mean for us?

YAKI TSAIG: Yeah, absolutely. And the market has obviously been reacting very strongly and pricing the AI enablers in a very aggressive way. And so I wanted to give a couple of different views into why that's the consensus view at the moment. So let's start with a sort of a macro broad view of the implications for the labor market.

A couple of months ago with the release of GPT-4, a group of economists went literally to the BLS, the Bureau of Labor Statistics in the United States, pulled out the job description for every job in the market, and measured the exposure of individual tasks to automation by GPT and related technologies.

So starting with sort of simple text interface, the one we know today from ChatGPT and assuming more advanced versions of it. And what they find, is as you assume more advanced versions that have visual reasoning capabilities as well, you see as much as 60% of the workforce in the US materially exposed to these technologies. And so that's one reason why we're seeing sort of such an inflow into this trade.

When we zoom in on the more firm level view, so we've used our internal data in a similar way that Jeff described earlier, we used our history of earnings calls to look at what firms are talking about when it comes to AI. And we zoomed out and did it in perspective and compared it to a couple of other technological revolutions that we've seen in the last decade. One is mobile, and the other is cloud computing.

So a couple of interesting things on this graph. So first of all, we see very clearly that AI as a topic, dominated the Q2 earnings season in terms of firms talking about it, talking about investment in that. More than half of the sample of firms that we looked at were talking about that theme actively.

When we put this in perspective relative to say mobile and cloud, so the mobile moment, the iPhone moment mid 2007, we can see on this graph that it took several years for the market to actually pick up on that as sort of an investment theme, and for firms to directly start using mobile technologies.

So the pickup has been very real. Firms are understanding the massive sort of potential implications. However, it's also clear that not all-- for all public forums out there, can come up with an AI strategy in the span of two, three months. And that's one of the reasons why we're seeing more additional sort of legs to the AI trade.

What we think is more likely in the short term, is to see impact, particularly on productivity gains as firms start to embrace this technology. And later on, we're going to also see this affect revenue outlook. I would caveat both analyses with the fact that we haven't talked too much about limits to adoption here.

Regulatory agencies are starting to look at this very closely. There is certain markets where reliability of these models is not yet up to standards. And so a lot of our analysis around this trade recently has focused on sector and name-specific understanding.

MUZO KAYACAN: So, thanks, Yaki. So the technology is evolving rapidly. It has a lot of different applications and a lot of relevance for different areas of the economy. But now, in terms of what we're doing-- we're-- investment management is a knowledge data intensive business. And it's our job to turn data into alpha. Can you give us a bit of a feel for what we're doing on that theme? How we're using these tools?

YAKI TSAIG: Yeah. So, Muzo, you said the magic words. We are a very knowledge intensive business. Our entire job is to take sort of a torrent of information and turn it into actionable insights in our portfolios. And no surprise, the immediate sort of implications of these technologies of large language models for us, is in processing and distilling large amounts of information into signals, into indicators that go into our model.

And that's where we see very strong capabilities for-- particularly for these broad models, models like the ones driving ChatGPT. We have been exploring these models for a few years. We still see them struggling with what us humans would think of as complex reasoning or abstract reasoning.

So I mentioned this before, these models are still not at the level of a human when it comes to very abstract reasoning. They also have a very fuzzy view of the knowledge that they were trained on. And so they are prone to hallucinations. They struggle with recall of factual knowledge.

One of the distinctions that I like to make, is between these broad models that were trained as general purpose assistants, like Bard and ChatGPT and others, and specialized models that are domain-specific, they could be smaller and have a smaller set of skills, but they're trained on specific patterns. And to sort of make that more concrete, I wanted to highlight a couple of uses. One of these smaller models, one of the broad models that we've been exploring in our investment process.

So one of our strategies is based on a large language model like GPT. And its fine-tuned specifically to learn an association between earnings call discussion and Q&A, and subsequent market reaction. So we actually train these models in house on proprietary data and deploy them during earnings calls to come up with return forecasts.

So a natural question is, do these broad models, like ChatGPT, can they do as well on these prediction tasks? And so to do that, we ran a little experiment where we sampled a subset of calls in 2022, asked models, like ChatGPT and its advanced version, GPT-4, to come up with a forecast of market reaction and compare the accuracy relative to in-house models.

So a couple interesting things. One is, we do see a pickup in the quality of GPT models in being able to do that task. But we see that they are both still substantially underperforming a domain-specific model. And that's not a surprising finding when you think about it.

These models are trained as general purpose assistant. They're not trained to learn associations between a particular event and a subsequent market reaction. And so we continue to see value in domain-specific smaller models that are trained for specific tasks.

But we also see a lot of value in the broad model and to sort of wrap it up and highlight last use case, here we have an example of what we call cross-lingual information extraction. So on the left-hand side, we have an article in Chinese about a Chinese car manufacturer. On the right-hand side, an article in Hebrew about a pharmaceutical companies.

And in both cases, were prompting a broad model, a GPT model, to come up with indicators out of those news reports, associate a score, and give a short rationale to the score that was associated. So things like sales growth, revenue outlook, and things of that sort. And we see that in both cases, the model successfully extracts the aspects that we asked for.

It also gives a rationale in the source language. So both of these are in different languages. It gives you a rationale back in English. And so it acts as a standardizer. We've now standardized a multilingual set of items into a uniform view that we can use both for systematic investing, as well as for understanding the rationale for these particular set of indicators.

So we're heavily exploring the use of these broad models. And more broadly in BlackRock, we view AI as a massive enabler for investment and something that we are continuing to invest in.

MUZO KAYACAN: Great. Thanks, Yaki. Fascinating insight into this area. And again, feel very privileged to have a true expert in this area working with us. And so just to wrap up, I think we-- there are a lot of signs of optimism here. We've talked about the market optimism. The market is, the equity market is pricing in a soft landing. Investors are buying stocks that suggest that everything is going to be maybe not completely fine in every area of the economy.

And again, with our data, it's showing that there are signs of inflation moderating, and maybe some pockets of weakness. But also plenty of bright spots in the economy. And again, when it comes to AI, yes, some people are pessimistic, and there are reasons to be concerned about that. But look, the pace of development has been phenomenal. There are going to be winners and losers.

One thing we can say, is that the BlackRock SE team, machine learning and AI are tools that we've been using for a number of years, researching them, and we will continue to try and use those to identify what's going on in the economy and who are going to be the winners and losers.

Hopefully, everyone's found this webcast informative and enjoyable, and you'll tune in for the next quarterly update. If you have any questions, please feel free to reach out to the SE Strategy Team or your BlackRock relationship manager. Thanks for your time and I hope we'll see you next quarter.

For investors in Italy: This document is marketing material: Before investing please read the Prospectus and the PPRIIPs KID available on www.blackrock.com/it, which contain a summary of investors’ rights.

Risk Warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

Important Information

This material is provided to the recipient on a strictly confidential basis and is intended for informational or educational purposes only. Nothing in this document, directly or indirectly, represents to you that BlackRock will provide, or is providing BlackRock products or services to the recipient, or is making available, inviting, or offering for subscription or purchase, or invitation to subscribe for or purchase, or sale, of any BlackRock fund, or interests therein. This material neither constitutes an offer to enter into an investment agreement with the recipient of this document, nor is it an invitation to respond to it by making an offer to enter into an investment agreement.

The distribution of the information contained herein may be restricted by law and any person who accesses it is required to comply with any such restrictions. By reading this information you confirm that you are aware of the laws in your own jurisdiction regarding the provision and sale of funds and related financial services or products, and you warrant and represent that you will not pass on or utilize the information contained herein in a manner that could constitute a breach of such laws by BlackRock, its affiliates or any other person.

In the US, this material is intended for Institutional Investors only.

In Canada, this material is intended for permitted clients as defined under Canadian securities law, is for educational purposes only, does not constitute investment advice and should not be construed as a solicitation or offering of units of any fund or other security in any jurisdiction.

In Latin America, for Institutional Investors and Financial Intermediaries Only (Not for public distribution). This material is for educational purposes only and does not constitute an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. It is possible that some or all of the funds mentioned in this document have not been registered with the securities regulator of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Uruguay or any other securities regulator in any Latin American country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America.

In Argentina, only for use with Qualified Investors under the definition as set by the Comisión Nacional de Valores (CNV).

 In Brazil, this private offer does not constitute a public offer, and is not registered with the Brazilian Securities and Exchange Commission, for use only with professional investors as such term is defined by the Comissão de Valores Mobiliários.

In Chile, the offer of each security not registered with the Comisión para el Mercado Financiero (“CMF”) is subject to General Rule No. 336 issued by the SVS (now the CMF). The subject matter of this offer may include securities not registered with the CMF; therefore, such securities are not subject to the supervision of the CMF. Since the securities are not registered in Chile, there is no obligation of the issuer to make publicly available information about the securities in Chile. The securities shall not be subject to public offering in Chile unless registered with the relevant registry of the CMF.

In Colombia, the offer of each Fund is addressed to less than one hundred specifically identified investors, and such Fund may not be promoted or marketed in Colombia or to Colombian residents unless such promotion and marketing is made in compliance with Decree 2555 of 2010 and other applicable rules and regulations related to the promotion of foreign financial and/or securities related products or services in Colombia.

IN MEXICO, FOR INSTITUTIONAL AND QUALIFIED INVESTORS USE ONLY. INVESTING INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THIS MATERIAL IS PROVIDED FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SHARES OF ANY FUND OR SECURITY.

This information does not consider the investment objectives, risk tolerance or the financial circumstances of any specific investor. This information does not replace the obligation of financial advisor to apply his/her best judgment in making investment decisions or investment recommendations. It is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of Mexico. If any funds, securities or investment strategies are mentioned or inferred in this material, such funds, securities or strategies have not been registered with the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, the “CNBV”) and thus, may not be publicly offered in Mexico. The CNBV has not confirmed the accuracy of any information contained herein. The provision of investment management and investment advisory services (“Investment Services”) is a regulated activity in Mexico, subject to strict rules, and performed under the supervision of the CNBV. These materials are shared for information purposes only, do not constitute investment advice, and are being shared in the understanding that the addressee is an Institutional or Qualified investor as defined under Mexican Securities (Ley del Mercado de Valores). Each potential investor shall make its own investment decision based on their own analysis of the available information. Please note that by receiving these materials, it shall be construed as a representation by the receiver that it is an Institutional or Qualified investor as defined under Mexican law. BlackRock México Operadora, S.A. de C.V., Sociedad Operadora de Fondos de Inversión (“BlackRock México Operadora”) is a Mexican subsidiary of BlackRock, Inc., authorized by the CNBV as a Mutual Fund Manager (Operadora de Fondos), and as such, authorized to manage Mexican mutual funds, ETFs and provide Investment Advisory Services. For more information on the Investment Services offered by BlackRock Mexico, please review our Investment Services Guide available in www.blackrock.com/mx. This material represents an assessment at a specific time and its information should not be relied upon by the you as research or investment advice regarding the funds, any security or investment strategy in particular. Reliance upon information in this material is at your sole discretion. BlackRock México is not authorized to receive deposits, carry out intermediation activities, or act as a broker dealer, or bank in Mexico. For more information on BlackRock México, please visit: www.blackRock.com/mx. BlackRock receives revenue in the form of advisory fees for our advisory services and management fees for our mutual funds, exchange traded funds and collective investment trusts. Any modification, change, distribution or inadequate use of information of this document is not responsibility of BlackRock or any of its affiliates. Pursuant to the Mexican Data Privacy Law (Ley Federal de Protección de Datos Personales en Posesión de Particulares), to register your personal data you must confirm that you have read and understood the Privacy Notice of BlackRock México Operadora. For the full disclosure, please visit www.blackRock.com/mx and accept that your personal information will be managed according with the terms and conditions set forth therein. BlackRock® is a registered trademark of BlackRock, Inc. All other trademarks are the property of their respective owners.

In Peru, this material is for­­­ the sole use of Institutional Investors, as such term is defined by the Superintendencia de Banca, Seguros y AFP.

This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.

In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

In the European Economic Area (EEA): this is Issued by BlackRock (Netherlands) B.V. is authorised and regulated by the Netherlands Authority for the Financial Markets. Registered office Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Tel: 31-20-549-5200. Trade Register No. 17068311 For your protection telephone calls are usually recorded.

In Italy: For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in Italian.

For qualified investors in Switzerland: This document is marketing material. This document shall be exclusively made available to, and directed at, qualified investors as defined in Article 10 (3) of the CISA of 23 June 2006, as amended, at the exclusion of qualified investors with an opting-out pursuant to Art. 5 (1) of the Swiss Federal Act on Financial Services (FinSA).

For information on art. 8 / 9 Financial Services Act (FinSA) and on your client segmentation under art. 4 FinSA, please see the following website: www.blackrock.com/finsa

In South Africa, please be advised that BlackRock Investment Management (UK) Limited is an authorised Financial Services provider with the South African Financial Services Board, FSP No. 43288.

In Israel: BlackRock Investment Management (UK) Limited is not licenced under Israel's Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995 (the “Advice Law”), nor does it carry insurance thereunder.

BlackRock Advisors (UK) Limited - Dubai Branch is a DIFC Foreign Recognised Company registered with the DIFC Registrar of Companies (DIFC Registered Number 546), with its office at Unit L15 - 01A, ICD Brookfield Place, Dubai International Financial Centre, PO Box 506661, Dubai, UAE, and is regulated by the DFSA to engage in the regulated activities of ‘Advising on Financial Products’ and ‘Arranging Deals in Investments’ in or from the DIFC, both of which are limited to units in a collective investment fund (DFSA Reference Number F000738).

In Dubai (DIFC): The information contained in this document is intended strictly for Professional Clients as defined under the Dubai Financial Services Authority (“DFSA”) Conduct of Business (COB) Rules.

The information contained in this document, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure that the information contained in this document is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this document (or any part of it) with the consent of BlackRock.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this document, may contain statements that are not purely historical in nature but are “forward-looking statements”. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorised financial adviser.

In China, this material may not be distributed to individuals resident in the People's Republic of China (PRC, for such purposes, not applicable to Hong Kong, Macau and Taiwan) or entities registered in the PRC unless such parties have received all the required PRC government approvals to participate in any investment or receive any investment advisory or investment management services.

In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. This material is for distribution to Professional Investors (as defined in the Securities and Futures Ordinance (Cap.571 of the laws of Hong Kong) and any rules made under that ordinance.) and should not be relied upon by any other persons or redistributed to retail clients in Hong Kong.

In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N) for use only with institutional investors as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.

In South Korea, this information is issued by BlackRock Investment (Korea) Limited. This material is for distribution to the Qualified Professional Investors (as defined in the Financial Investment Services and Capital Market Act and its sub-regulations) and for information or educational purposes only, and does not constitute investment advice or an offer or solicitation to purchase or sells in any securities or any investment strategies.

In Taiwan, Independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28F., No. 100, Songren Rd., Xinyi Dist., Taipei City 110, Taiwan. Tel: (02)23261600.

In Australia & New Zealand, issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230 523 (BIMAL) for the exclusive use of the recipient, who warrants by receipt of this material that they are a wholesale client as defined under the Australian Corporations Act 2001 (Cth) and the New Zealand Financial Advisers Act 2008 respectively.

This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should therefore assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. Refer to BIMAL’s Financial Services Guide on its website for more information. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction.

This material is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. BIMAL is the issuer of financial products and acts as an investment manager in Australia. BIMAL does not offer financial products to persons in New Zealand who are retail investors (as that term is defined in the Financial Markets Conduct Act 2013 (FMCA)). This material does not constitute or relate to such an offer. To the extent that this material does constitute or relate to such an offer of financial products, the offer is only made to, and capable of acceptance by, persons in New Zealand who are wholesale investors (as that term is defined in the FMCA).

BIMAL, its officers, employees and agents believe that the information in this material and the sources on which it is based (which may be sourced from third parties) are correct as at the date of publication. While every care has been taken in the preparation of this material, no warranty of accuracy or reliability is given and no responsibility for the information is accepted by BIMAL, its officers, employees or agents. Except where contrary to law, BIMAL excludes all liability for this information.

Privacy Policy

The opinions presented are those of speakers as of the date of this scheduled webcast 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 non-proprietary 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. 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.

BlackRock, Inc., 55 East 52nd Street, New York, NY 10022.

THIS MATERIAL IS HIGHLY CONFIDENTIAL AND IS NOT TO BE REPRODUCED OR DISTRIBUTED TO PERSONS OTHER THAN THE RECIPIENT.

The information contained in this document is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public. The information contained in this document, may contain statements that are not purely historical in nature but are “forward-looking statements”. These include, amongst other things, projections, forecasts or estimates of income. These forward-looking statements are based upon certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this document, you should consult an authorized financial adviser.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2023 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.