The BlackRock Target Allocation Team, which runs model portfolios followed by many advisors, turned even more bullish this week. Indeed, the current allocation to stocks is the highest it has been since 2021. VettaFi believes BlackRock’s team manages approximately $100 billion in assets.
As part of a rebalance, the ETF models leaned more heavily into stocks than bonds than before. According to BlackRock, the team increased to a 4% overweight in stocks relative to bonds, highlighting a supporting macroeconomic environment. In March 2024, BlackRock previously added exposure to quality U.S. stocks.
Further Favoring Growth Stocks for the Second Half
“We’re increasing our exposure to growth stocks across US and developed markets, recognizing their pivotal role in driving earnings growth,” said Michael Gates, lead portfolio manager for BlackRock’s Target Allocation ETF model portfolio suite.
Based on trading activity yesterday, VettaFi believes the iShares S&P 500 Growth ETF (IVW) and the iShares MSCI EAFE Growth ETF (EFG) were boosted in the model portfolios. While BlackRock does not directly purchase these ETFs, we believe that advisors who work with the asset manager now own more of these ETFs.
Relative to the iShares Core S&P 500 ETF (IVV), IVW has more information technology (49% of assets vs. 31%) and communications services (13% vs. 9%). Apple, Meta Platforms, Microsoft, and NVIDIA are all larger positions in IVW than in IVV. Meanwhile, financials (5% vs. 13%) is a smaller weighting in the growth ETF.
International Equities in Focus
When we compare EFG with the broader iShares MSCI EAFE ETF (EFA), we find distinct overweights. Industrials (21% vs. 18%) and health care (18% vs. 12%) are the two largest sectors for the developed markets growth ETF. However, information technology stocks are also well represented (16% vs. 9%). ASML, AstraZeneca, and NOVO Nordisk are top positions in EFG.
In addition, the BlackRock team reduced its underweight to emerging market (EM) equities this week. “Rate cuts from the Fed are a boon to emerging markets as they make it safer for EM central banks to perform local easing to boost domestic growth. This scenario presents a promising setup for a potential resurgence in EM,” noted Gates.
VettaFi believes the unusually large trading volume in the iShares Core MSCI Emerging Markets ETF (IEMG) is the result of this allocation change. IEMG’s largest country exposure is to China (24% of assets), India (20%) and Taiwan (19%).
A More Systematic Fixed Income to Watch
Gates also noted that in more conservative risk profiles, BlackRock made fixed income adjustments. “We are rotating our investment-grade position into a systematic exposure focused on investment-grade bonds with higher quality and more reasonable spreads.”
The iShares Investment Grade Systematic Bond ETF (IGEB) was likely the beneficiary of this move. Relative to traditional investment-grade corporate bond ETFs, index-based IGEB favors issuers with healthy balance sheets and attractive valuations. As of early June, 74% of assets were in BBB-rated bonds.
IGEB had $707 million in assets as of June 5, but this likely will increase notably. Due to the scale of BlackRock’s model business, investors will see certain funds climb the leaderboard unexpectedly. We think they should do their due diligence.
In January and March 2024, BlackRock’s changing allocations boosted the asset base of the BlackRock U.S. Equity Factor Rotation ETF (DYNF). The ETF now manages $8 billion, nearly all flowing in since the start of the year.
For more news, information, and analysis, visit VettaFi | ETF Trends.