BlackRock Investment Institute says portfolio construction may need to change in the current environment, adding that it is further overweight in U.S. equities.
On Wednesday, BlackRock released its 2025 Global Outlook that said investors may want to rethink investing in an environment with no stable long-term trend and an “ever evolving outlook.” The report said investors should reconsider what neutral asset allocation is and stressed the importance of being more dynamic with portfolios.
The report noted that financial markets are being reshaped, with benchmark indexes changing as some sectors are seeing high growth, while others contract.
“Transformation raises questions about how to build portfolios. An ever-changing outlook calls for an ever-evolving portfolio. It calls into question many long-held investing principles, including the idea of a neutral ‘benchmark’ portfolio like the traditional 60/40 portfolio mix of stocks and bonds,” the report said.
“We think investors should broaden out where they invest. That may include private markets, notably private credit and infrastructure.”
Going forward, BlackRock said in its report that it views private markets as “playing a pivotal role,” allowing investors to access large-scale transformations in the current investment environment that public markets have only partial access to.
“For example, private markets can offer exposure to early-stage growth companies driving AI adoption and to vital infrastructure projects. We think the future of finance – a mega force on its own – will be shaped by non-bank lenders increasingly funding such large-scale projects,” the report said.
BlackRock also noted that assets under management in private markets are anticipated to roughly double from 2023 levels by 2029.
U.S. stocks
The authors of the report said they view the U.S. as “standing out” compared to other markets due to higher growth and an ability to “capitalize on mega forces” that are driving corporate earnings.
“We up our overweight to U.S. equities and see the AI theme broadening out,” the report said.
The report noted that one of the mega forces, driving enthusiasm for U.S. equities is AI.
“We think the AI mega force will benefit U.S. stocks more and that’s why we stay overweight, particularly relative to international peers such as European stocks,” BlackRock said in the report.
Corporate strength in the U.S. also goes beyond the theme of AI, according to BlackRock.
“We think that U.S. corporate strength is the most likely scenario to play out over the next six-to-12 months as earnings growth broadens, even if the economy slows slightly. This highlights the resilience of corporate earnings even if interest rates stay higher,” the report said.
According to the report, the favourable view on U.S. stocks is supported by potential tax cuts and a softening regulatory environment.