The portfolio of the future
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: Index and Active
In the post-pandemic world, investors need to be agile to navigate volatility and seize opportunity. So don’t get stuck thinking about index versus active. Successful wealth creation in this new era will come from harnessing the power of both.
By taking a ‘whole portfolio’ approach that blurs the lines between index and active strategies through index ETFs, active ETFs, and active mutual funds, you can exploit your skill in timing markets and picking exposures precisely and nimbly – while keeping a lid on costs.
Embracing a broader investing toolkit like this is the way to succeed in an uncertain world. And remember: using ETFs for both index and active strategies can free up fee budget for more highly-skilled alpha-seeking managers.
Be dynamic
Clinging to old habits? You might be limiting your performance potential – right when clients are setting a higher performance bar.
With higher uncertainty and higher performance dispersion in specific markets, fixed or ‘set and forget’, strategies could soon turn to ‘set and regret’. It's time to be more dynamic. A flexible and more granular blend of asset classes should see you adapt and thrive.
Read our guide for expert insights that could help you succeed in the years ahead. On dynamic asset allocation, portfolio stress-testing, and investor education, we’ve got you covered.
Embrace change
In the past, portfolio builders have placed a lot of emphasis on picking, and sticking with, investment products.
Stategies built through broad and fixed allocations, adhered to false dichotomies like ‘public versus private markets’, or ‘passive versus active’, safe in the assumption that most investment choices would work.
Today, there’s far less conviction over the path ahead - prompting one of the most significant investment process transformations seen in a generation.
This new investment reality demands a more integrated approach. The moment is ripe for a rethink.
Why asset mix matters more now
Your asset mix matters more than ever now, and traditional fixed allocations to public markets might not be up to the job. Time to blur the lines and prioritise strategic asset allocation in your investment process.
Intro
Welcome to this new edition of CIO Pulse – a BlackRock video series discussing key transformative opportunities across investments, business and technology for the Chief Investment Office.
I am Ursula Marchioni, Head of Investment and Portfolios Solutions in EMEA – and I am joined today by Adam Ryan, head of the Diversified Strategies team and CIO of Multi-Alternatives within BlackRock’s Multi-Asset Strategies & Solutions Group.
Welcome Adam!
So, let’s begin …
Q1)
What is the top current investment opportunity a CIO should consider?
At BlackRock, we have identified 5 key long-term themes (or Mega Forces) that are shaping the investment landscape.
Right now, we’re seeing a rapid coming-together of 3 of them, namely digital disruption and AI, geopolitical fragmentation, and the transition to a low-carbon economy.
Governments have quickly realised that AI is both an economic and important geopolitical advantage and so are quickly moving to restrict access to both hardware and software for competing economies.
At the same time, there has been a recognition that we won’t be able to maximise the potential of this technology if we can’t provide sufficient energy and a need for this to be sourced from sustainable sources.
From an investment perspective, this creates opportunity but also unpredictability given the politicisation of the technology and makes specific events such as the US election even more influential on markets.
It also reignites the interest around the transition to sustainable energy given the recognition of just how much electricity will be required to power the vastly expanded data centres.
Overall, if I put myself in the shoes of a CIO – thinking of how to retain existing clients, and attracting news ones, with great, differentiated performance - these 3 themes are an area where a clear view, and related investment plan, must be formed.
Q2)
What is the top overall investment consideration a CIO should currently take into account when managing portfolios?
In essence: the role of a CIO is to harness the benefits of the entire spectrum of investment opportunities to be delivered to the end client – and this means multi-asset investing, across public and private.
The CIO role is therefore guided by 2 key elements:
The first is that there is a significant difference in risk or volatility between asset classes. Think at the extreme the difference in risk between government bonds and venture capital for example).
And the second is that the correlation between different asset classes has a significant impact on the overall portfolio risk.
The challenge of taking these into account would be relatively straightforward were it not for the fact that neither of these factors are stable through time.
In practice: any risk model will only be accurate at a point in time and if history repeats itself (or at the very least closely rhymes).
For this reason, it’s important that the CIO takes a forward-looking view not only of the risk and return potential of the individual assets in the portfolio, but also how the relationship between them may change.
This is crucial when thinking about defensive assets one may hold.
2022 was a great example of this when government bonds, traditionally held as a counterbalance to riskier assets, performed as poorly as equities given the threat of higher interest rates in response to surging inflation.
Q3)
And now for some quick-fire questions…
Gold or bitcoin:
Gold – because it’s a physical asset, and in a world where the threat of digital disruption through cyber attacks is likely to grow, the value of this facet will likely increase.
Private equity or private credit:
Tough one, they’re both attractive for different reasons, but if forced to pick one , Private Equity, given the uncapped upside and the ability to access companies in sectors and with exposure to specific themes such as transition which is significantly harder to do in public equities.
Long or short Mag7:
Right now, short despite believing the long-term game-changing nature of the technology, because we may be further away than people think from having applications of the technology which are significant in terms of revenue generation. This in turn may lead to some doubt creeping in that the huge amounts of capital already invested may not see a positive return on investment.
Thank you Adam, and thank you all for being with us today – see you soon for our next video!
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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