BlackRock Model Portfolios

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

As we approach the end of 2024, 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.

Equity markets have recorded strong positive returns year-to-date, following renewed clarity on US election outcomes, resilient economic data and robust corporate earnings.

US equities continue to outperform Australian and other international equity markets, and the rally appears to be broadening out from just the Magnificent Seven stocks to other sectors.

Importantly, the latest US corporate earnings season suggests that earnings momentum is improving across a wider set of winners beyond just companies directly linked to AI.

Meanwhile, Emerging market equities have also recorded strong positive returns in recent months supported by monetary and fiscal stimulus announcements from Chinese government authorities.

Beyond equities, Gold has outperformed most major asset classes this year, rising by over 30% year-to-date as geopolitical tension and sustained central bank buying has significantly increased demand for the yellow metal.

Fixed income assets have recorded slightly positive returns year-to-date, but this has come with some volatility and there remains uncertainty around the future path of interest rates globally.

In the US, the Federal Reserve has begun their easing cycle, cutting rates by 75 basis points over the past three months as inflation has improved meaningfully and is close to the Fed’s target of 2%. The European Central Bank has also cut rates multiple times this year alongside slower economic growth, weaker employment and more contained inflation in the Eurozone.

By contrast, the Reserve Bank of Australia has remained on hold so far this year while the Bank of Japan has tightened monetary policy in recent months.

Against this more volatile and uncertain backdrop, the Enhanced Strategic Model Portfolios have adopted a more nimble and granular approach to navigate the economic crosscurrents.

This has enabled our portfolios to perform well and deliver top quartile returns year-to-date, according to Morningstar’s Peer Rankings.

Some of the key contributors to the strong performance include:

First, our preference for equities over bonds which has worked well this year.

Second, our preference for US over domestic equities has added value as the US sharemarket has continued to outperform.

Third, the addition of Gold, Global Listed Infrastructure and Property has added value. All three of these new exposures have appreciated significantly since we added them to the portfolio earlier in the year. But equally as important, they have also delivered valuable diversification benefits especially during periods of market volatility.

While we are pleased with the strong track record, recent market developments have led us to make some changes to the portfolio.

Here are some of the key trades we implemented on the 12^th of November:

First, we lean into risk assets, as fading US election uncertainty and resilient economic growth are likely to provide a constructive backdrop for global markets. Prior to the US election, we had modestly trimmed our equity exposure in mid-August. We now add back to equity risk funded predominantly from global bonds and cash.

Within equities, we continue to favour Developed markets but re-calibrate cross-regional exposures. Specifically, we further increase our overweight to US equities as we believe the market rally, which was previously driven by mega tech companies, can broaden out across other sectors.

We also increase our Emerging markets equity exposure and bring it closer to neutral, given an improved earnings outlook and relatively more attractive valuations.

Within fixed income, we prefer credit over longer duration government bonds. From a regional perspective, we prefer Australian over global bonds.

Finally, we increase the exposure to Gold slightly as we believe the favourable supply-demand dynamics can continue.

Thanks for watching.