BlackRock, the world’s largest asset manager, recently orchestrated a significant reshuffle of approximately $5 billion in its quant-style ETF lineup, driven by the buoyant prospects of value shares amid the resilience of the US economy. The move, executed on Thursday, saw substantial capital allocation to a pair of BlackRock Inc. funds, one focusing on undervalued stocks and the other dynamically rotating between different investment style factors, according to Bloomberg data. This reallocation reflects adjustments to holdings within BlackRock’s model portfolios, as confirmed by a knowledgeable source.
“We’re shifting from the growth style to value to align with our optimistic view on the economy and anticipation of a soft landing,” explained Michael Gates, lead portfolio manager for BlackRock’s Target Allocation ETF model portfolio suite, in an investment outlook. “While maintaining an overweight stance on stocks, we anticipate volatile markets in the first half of the year and are consolidating some positions, particularly emphasizing our heavy US tilt.”
Model portfolios, bundling an issuer’s funds into pre-constructed strategies, have gained significant traction in recent years, with BlackRock alone managing around $100 billion in assets within them. Consequently, even minor adjustments to these strategies can trigger substantial capital flows. In this instance, the iShares S&P 500 Value ETF (IVE) and the BlackRock US Equity Factor Rotation ETF (DYNF) attracted $2.9 billion and $1.9 billion, respectively, on Thursday.
Conversely, the iShares MSCI USA Quality Factor ETF (QUAL) experienced outflows of approximately $2.2 billion, while the iShares S&P 100 ETF (OEF) lost $1.5 billion. The team’s strategy involves reducing factor-like exposures in favor of increasing allocations to DYNF, as per Gates’ remarks.
Encouraging signs that the Federal Reserve’s interest rate hikes have successfully curbed inflation without stifling economic growth have propelled the S&P 500 to new record highs. Economic data released on Friday further bolstered these expectations, with the Fed’s preferred inflation gauge dropping to a nearly three-year low last month despite exceeding estimates for personal spending.
Despite the pivot towards value-oriented stocks, BlackRock’s model team maintains an overweight position in the technology sector. Gates emphasized that the outlook for forward earnings remains strongest in the US markets, particularly within the tech sector.
Beyond equities, BlackRock’s actively managed Flexible Income ETF (BINC), managed by Rick Rieder, witnessed record inflows of $455 million on Thursday. Gates explained that this move involved selling benchmark bond and credit exposures to finance investments in BINC, reflecting a high-conviction preference for increased risk exposure and diversified sources of spread return within fixed income.
In summary, BlackRock’s strategic shift towards value stocks signals confidence in the ongoing economic recovery and underscores the importance of dynamic portfolio management in navigating evolving market conditions.
