Global markets experienced bouts of volatility in the third quarter of 2024 but ended with solid returns across most asset classes. Early August saw major turmoil following a surprise policy hike by the Bank of Japan and rising US recession fears. However, risk assets rebounded to finish Q3 strongly, driven by the start of the US Federal Reserve’s (Fed) easing cycle, resilient economic data, and significant government stimulus measures in China.

October was another volatile month for markets, with equities and bonds both ending weaker across the board. This downturn was partly driven by investors reassessing the likelihood of rapid rate cuts amid a more positive economic outlook, bolstered by strong economic data. Additionally, uncertainties surrounding the upcoming US election and geopolitical tensions in the Middle East contributed to the underperformance.

Conservative, Balanced and Aggressive Model Portfolios

Performance Commentary

The models delivered negative returns but outperformed their respective benchmarks in October. In contrast, the third quarter saw the models underperforming their benchmarks, yet achieving positive returns.

In October, broad equity and fixed income exposures both experienced corrections, which negatively impacted performance. However, BlackRock’s gold exposures acted as a portfolio diversifier and contributed positively to performance on a relative basis. As a safe haven asset, gold appreciated over the month due to heightened tensions in the Middle East.

Conversely, broad equity and fixed income exposures both contributed positively on an absolute basis in the third quarter. Within equities, US equities were significant contributors to performance, driven by a market rally following a 50 basis point cut by the Fed in September. On the fixed income side, US Treasuries boosted performance as global fixed income markets broadly rallied throughout Q3, supported by rate cuts from central banks in several developed economies.

Source: BlackRock, Morningstar as of 31 Oct 2024; Performance is based on USD total returns with income reinvested and net of total expense ratios but gross of transaction costs. Past performance does not guarantee future results.

*Inception date for Conservative, Balanced and Aggressive models is 31 Dec 2014.

** Using Bloomberg Global AGG/MSCI ACWI until 31 Dec 2017, Bloomberg US Universal/MSCI ACWI EUR/GBP Hedged to USD after 31 Dec 2017.

Reoptimisation Commentary

The past few months have been marked by significant volatility in the markets, driven by various global events. The most notable of these has been the US election, which concluded with a Trump victory. With the uncertainty around the election now resolved, BlackRock is taking steps to rebalance their models to stay ahead of evolving conditions and future changes. Their key themes will focus on the market implications of a Trump win, including pro-growth measures, tougher trade policies, and prolonged inflation resulting from elevated budget deficits from tax cuts.

As BlackRock anticipates market volatility to moderate following the US election, they believe this is an opportune time to adopt a more risk-on stance by increasing their overall equity exposures. Within equities, they are increasing their overweight position in US equities due to solid economic and corporate earnings growth. Additionally, they anticipate potential pro-growth policies, such as tax cuts, under Trump’s presidency, which could act as tailwinds for the economy.

On the other hand, potential US-imposed tariffs and weak earnings growth prompted BlackRock to trim their European equities exposure. As a result, they are reducing European equities to a slight underweight. In Japan, they remain positive with a small overweight position, as corporate reforms continue to drive improved earnings and shareholder returns. They are maintaining their hedged positions in Japan as markets expect a potentially stronger US dollar under the Trump administration. Elsewhere, they are maintaining a relatively neutral stance on China. While there is potential for additional stimulus measures, meeting high market expectations will be challenging, and potential US tariffs could pose headwinds to the country's growth.

On the fixed income side, BlackRock is reducing their underweight position in high yield and emerging market bonds, funding from their allocations in US Treasuries to reduce active risk on the fixed income side. However, they are keeping a small overweight in the long end of the curve. The October job print surprised consensus to the downside with a large downward revision from the previous two months. Considering the ongoing cutting cycle, recent significant increase in yield, and deceleration in job growth, taking a slightly long position on the long end of the curve may serve as an effective hedge for the portfolio. Overall portfolio duration will be neutral relative to benchmark.

Within the alternative basket, BlackRock is increasing their allocation in gold as a portfolio diversifier. They believe gold can provide significant hedging value as they anticipate continued volatility from escalating trade tensions and debt fears under the Trump administration, as well as geopolitical risks from Middle East conflicts. Additionally, they are maintaining their allocation to Treasury inflation-protected securities (TIPS), given potential inflationary pressures from an anticipated protectionist stance and tax cuts, which could lead to more sustained inflation ahead.

*Source: BlackRock Investment Institute.

Very Aggressive Portfolio

Performance Commentary

The equity model delivered negative returns but outperformed its benchmark in October. In contrast, the third quarter saw the model underperform its benchmark, yet achieve positive return.

While broad equities detracted in October on an absolute basis as investors scaled back the timing and magnitude of future monetary policy easing amid strong economic data, BlackRock’s underweight in European equities contributed to relative performance. European equities fell over the month driven by disappointing corporate earnings and weak economic data.

In the third quarter, overall equities contributed positively on an absolute basis, with US equities as the largest performance contributor. The S&P 500 rallied over the quarter following a 50 basis point cut by the Fed in September.

Source: BlackRock, Morningstar as of 31 Oct 2024; Performance is based on USD total returns with income reinvested and net of total expense ratios but gross of transaction costs. Past performance does not guarantee future results.

* Inception date for Very Aggressive model is 31 Oct 2016.

** Using Bloomberg Global AGG/MSCI ACWI until 31 Dec 2017, Bloomberg US Universal/MSCI ACWI EUR/GBP Hedged to USD after 31 Dec 2017.

Reoptimisation Commentary

The past few months have been marked by significant volatility in the markets, driven by various global events. The most notable of these has been the US election, which concluded with a Trump victory. With the uncertainty around the election now resolved, BlackRock is taking steps to rebalance their models to stay ahead of evolving conditions and future changes. Their key themes will focus on the market implications of a Trump win, including pro-growth measures and tougher trade policies.

As BlackRock anticipates market volatility to moderate following the US election, they believe this is an opportune time to adopt a more risk-on stance, which has been reinforced through selling their minimum volatility positions. They are increasing their overweight position in US equities due to solid economic and corporate earnings growth. Additionally, they anticipate potential pro-growth policies, such as tax cuts, under the Trump presidency, which could act as tailwinds for the economy.

On the other hand, potential US-imposed tariffs and weak earnings growth prompted BlackRock to trim their European equities exposure. As a result, they are reducing European equities to a slight underweight. In Japan, they remain positive with a small overweight position, as corporate reforms continue to drive improved earnings and shareholder returns. They are maintaining their hedged positions in Japan as markets expect a potentially stronger US dollar under the Trump administration. Elsewhere, they are maintaining a relatively neutral stance on China. While there is potential for additional stimulus measures, meeting high market expectations will be challenging, and potential US tariffs could pose headwinds to the country's growth.

BlackRock is also adding exposures to the gold producer sector, whose margins can benefit from rising gold prices. They believe gold can provide significant hedging value as they anticipate continued volatility from escalating trade tensions and debt fears under the Trump administration, as well as geopolitical risks from Middle East conflicts.

Source: BlackRock, Performance commentary as of 31 Oct 2024. Rebalance date is 19 Nov 2024.

This information should not be relied upon as investment advice, research, or a recommendation by BlackRock regarding (i) the iShares Funds, (ii) the use or suitability of the model portfolios or (iii) any security in particular. Only an investor and their financial advisor know enough about their circumstances to make an investment decision. Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy.

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