Enhancements to BlackRock's investment strategy boost U.S. stock holdings, citing international markets as 'less competitive'
BlackRock Boosts US Equity and AI Allocation in Model Portfolio
In a significant move, BlackRock, one of the world's largest asset managers, has announced a shift in its model portfolio allocations, increasing its exposure to US stocks and artificial intelligence (AI).
According to Michael Gates, lead portfolio manager for BlackRock's Target Allocation ETF model portfolios, the US stock market is leading in terms of earnings growth, revenue growth, and sustainable trends in analyst estimates and revisions. This assertion is backed by BlackRock's investment note, which states that the S&P 500 has reached a record high this year due to enthusiasm for AI spending and expectations of a Federal Reserve interest rate cutting cycle.
On Tuesday, the firm made adjustments to its allocations, resulting in a 2% overweight position in US equities at the expense of international stocks from developed markets. This shift was confirmed by a BlackRock spokesperson and led to significant flows of funds between BlackRock's exchange-traded funds.
The iShares S&P 100 ETF (Ticker OEF) received the largest single-day inflow of around $3.4 billion, while the iShares Core S&P 500 ETF (IVV) and the iShares US Equity Factor Rotation Active ETF (DYNF) absorbed around $2.3 billion and nearly $2 billion, respectively. In contrast, the iShares US Technology ETF (IYW) lost $2.7 billion on Tuesday as BlackRock moved away from a broad-based US tech ETF to an AI-focused fund in its model portfolio allocations.
However, the firm is not abandoning technology entirely. Instead, it is "doubling down on AI". Around $1.4 billion flowed into the iShares AI Innovation and Tech Active ETF (BAI) on Tuesday, indicating a growing interest in AI-focused investments.
The model team at BlackRock views AI as both a defensive hedge and a growth catalyst. This perspective is reflected in BlackRock's decision to increase its exposure to AI within its $185 billion model portfolio system. Developed markets outside the US are not competitive in terms of earnings and revenue growth, particularly in terms of trends in revenue growth, according to BlackRock's investment note.
This strategic shift by BlackRock comes as the US has achieved earnings growth of 11% since the third quarter of 2024, compared to less than 2% in other developed markets. The firm's decision, coupled with the expected Federal Reserve interest rate cutting cycle, is expected to further boost the US stock market.
In conclusion, BlackRock's decision to increase its exposure to US stocks and AI via its $185 billion model portfolio platform reflects a growing confidence in the US market's ability to lead in terms of earnings growth, revenue growth, and sustainable trends. This shift in allocations could potentially influence other asset managers and contribute to the continued rally of the US stock market.
