The portfolio of the future
FOR PROFESSIONAL CLIENTS / QUALIFIED INVESTORS / QUALIFIED CLIENTS / SOPHISTICATED INSTITUTIONS ONLY
In the latest instalment of our ‘Portfolio of the future’ series, we outline why we believe adding private market allocations alongside public markets could unlock new opportunities in portfolios.
A higher performance bar, coupled with higher uncertainty around equity and bond correlations, has meant that traditional portfolio allocations, such as the 60/40 stocks and bonds portfolio, have come under pressure since 2020. We believe that building the ‘Portfolio of the Future’ requires an evolution in asset allocation – looking beyond public markets to benefit from new sources of return, income and diversification, often available in private markets.
A ‘whole portfolio’ implementation approach – focused on the end outcome and blurring the lines between public and private markets through innovative, scalable, flexible and regulated investment structures, such as the European Long-Term Investment Fund (ELTIF) – is crucial for long-term success and wealth creation.
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Portfolio construction has evolved profoundly since 2020. Are you keeping pace? Created by BlackRock’s expert portfolio consultants, our Portfolio of the Future series gives you insights into how to build future-proofed portfolios.
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.
Blurring of lines:Public and Private markets
Dive into the "Portfolio of the Future" and discover how integrating private markets opportunities can revolutionize your strategy. This essential guide unveils innovative approaches that have the potential to enhance returns, diversify risk, and provide resilience in today's volatile market. Explore transformative product innovations, such as the European Long-Term Investment Fund (ELTIF) 2.0, which offers scalable and regulated structures. Don't miss out on this opportunity to leverage both public and private markets and capture structural trends for optimal outcomes. Read the full paper now and stay ahead in the ever-evolving landscape.
Explore prior editions
The future of investing starts here
Markets are changing fast, and investors need to keep up. Allocating across public and private markets can create a more balanced and future-ready portfolio, helping to potentially enhance portfolio returns, manage risk and capture structural opportunities. This video unpacks what's driving the shift - and how to get ahead of the curve.
Ursula
Welcome to the latest edition of CIO Pulse, BlackRock’s video series on transformative opportunities for the Chief Investment Office. I’m Ursula Marchioni, Head of Investments and Portfolio Solutions in EMEA, and I’m joined by Raffaele Savi, Global Head of BlackRock’s Systematic team. Let’s get started.
What is the top current investment opportunity a CIO should consider when investing systematically?
Raffaele
Artificial intelligence has become a dominant theme in markets over the past 18 months. For a CIO, I personally think the opportunity lies in playing this theme in two non-obvious ways.
Firstly, when it comes to investing in - and around – the theme of AI we need to think outside the box, with the box being ‘tech’ in this example.
Given the positive sentiment around AI, tech company valuations surged from mid-2022, reaching impressive heights before experiencing a partial correction in October 2024.
While many market participants remained focused on hyperscalers and AI leaders, our Systematic team shifted focus from tech to potential beneficiaries outside the sector that hadn't yet priced in AI benefits, such as traditional retailers with successful e-commerce and firms offering online business management software.
Ursula
I see. Instead of following the market, you were anticipating where AI's impact might manifest in places others weren’t looking.
Raffaele
Exactly - That’s the first opportunity. The second investment opportunity relates to how AI needs to be a central part of how CIOs and their investment teams consume and interpret data, to manage the next generation of active investment portfolios – in a repeatable, scalable way.
Ursula
Can you explain how your team have harnessed AI within portfolios?
Raffaele
Absolutely. We use AI, specifically large language models (LLMs), to identify and invest in various themes. These LLMs systematically generate baskets of securities, seeking to uncover less obvious investment opportunities. For example, our model identifies AI beneficiaries outside the technology sector among thousands of companies in global equity markets. Our 'Tactical Robot' (as we name it) then builds a basket of unexpected AI beneficiaries for our team to evaluate and potentially trade in portfolios.
Ursula
So, it’s not just about AI making decisions, but augmenting human judgment and creativity? This seems like a perfect example of how AI will increasingly work in harmony with experienced investors.
Raffaele
Yes, it’s the key to building scalable investment portfolios. The result could be differentiated alpha — creative, out-of-consensus ideas that we might not have uncovered otherwise.
Ursula
What is the top overall investment consideration a CIO should currently account for?
Raffaele
I’ve seen first-hand the impact that evolving data analytics have had on our portfolios, over almost three decades in Systematic investing. The ability of data analytics to drive investment at scale will be key, in my view.
Going back more than fifteen years ago, our team began using simple Natural Language Processing to analyze the ‘positive or negative’ nature of words in publications, such as broker reports and company conference call transcripts.
Ten years ago, we were leveraging Advanced Machine Learning Tools, and now Large Language Models are a key tool for our investors.
Ursula
So, you’re leveraging LLMs for complex data analysis, but how does that translate into better investment decisions?
Raffaele
In practical terms, as investors become more sophisticated using these tools, they can assess more information, manage portfolio risk more effectively, and identify alpha opportunities more efficiently.
Ursula
Sounds like speed and precision are vital here. Have you seen any concrete examples of how these tools have improved your portfolios?
Raffaele
For sure, take computation power for example which has been doubling every six months since approximately halfway through the last decade. The amount of raw data created on the internet each day is forecast to hit over 180 Zettabytes in 2025 (from 64 in 2020)1,2. Within our Systematic team alone, we review approximately 100+ new data sets each year3.
Ursula
How do you manage all that information?
Raffaele
It’s all about using the right tools. Our portfolio managers can now access a library of nearly 1,000 data-driven investment insights, to help design our portfolios3. This approach could potentially offer investors with accuracy, speed, and transparency in active portfolio management.
Ursula
Fascinating.
Now for our quick-fire questions.
Will you be throwing your lot in with (a) the Humans or (b) the Machines?
Raffaele
My answer here would be that it is not about man versus machine; it's about finding the optimal way to elevate the human-machine-team. As humans, we may need to shift our contributions to areas where machines simply are not as effective, leveraging skills such as judgment, creativity, passion, and leadership.
Ursula
Do we see future investors (a) taking a more data-driven approach, or (b) leveraging traditional macroeconomic theories?
Raffaele
Well, we expect a data-driven approach to outperform macroeconomic theories. Real-time economics, which leverages extensive data, can offer better insights into our position in the economic cycle and the direction of asset prices.
For example, by analysing millions of job postings, we can gauge wage inflation, or by using price data, we can predict inflation trends. This real-time analysis enables investors to make more informed decisions based on current economic conditions.
Ursula
Does a market with a higher dispersion of returns result in (a) greater opportunities for Systematic investors, or (b) create a challenging and volatile investment environment?
Raffaele
Higher dispersion could provide greater alpha opportunities for systematic investors as they can take advantage of return differences across securities, by making both long and short investments. Bigger winners and losers in the markets could allow us to better express a broader range of active views and capture alpha.
CIO Pulse
Introducing CIO Pulse, a brand-new video series designed to help CIOs stay on top of today’s transformative opportunities. Hosted by Ursula Marchioni, Head of EMEA Investment & Portfolio Solutions, CIO Pulse features thought leaders from across BlackRock offering fresh perspectives on the most significant trends reshaping investing and tech.
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