BlackRock urgers broader diversification

BlackRock is urging financial advisers to move beyond traditional approaches to diversification, arguing heightened geopolitical uncertainty, artificial intelligence (AI) and structural economic shifts require more dynamic portfolio construction.

Speaking at the Advisers Big Day Out in Wollongong, BlackRock model portfolio solutions lead Tatiana Bernard said investors should distinguish between short-term market volatility and the long-term themes reshaping the global economy, while adopting more granular portfolio positioning across regions, sectors and asset classes.

Bernard, who is lead portfolio manager for BlackRock's Australian Model Portfolio Solutions team and is a member of the firm's Multi-Asset Strategies and Solutions Group, said markets were increasingly being driven by "mega forces" rather than traditional economic cycles.

"Markets have a lot of daily, weekly and monthly gyrations that can scare the bejesus out of us and make us questions a lot of out fundamental beliefs," Bernard said.

"It's important to maintain those fundamental beliefs and understandings, and stick with your thesis through these gyrations in markets."

She identified AI, geopolitical fragmentation, demographic change, energy resilience and the transformation of financial systems as key structural trends that would continue shaping investment returns over the coming decade.

While technology stocks have experienced periods of heightened volatility, Bernard said the investment case for AI remained intact, supported by unprecedented levels of capital expenditure.

"AI is a mega force, it's going to change a lot of our economies," she said.

"While the productivity gains remain to be seen, this spending boost is here now."

Bernard pointed to continued investment in semiconductors, data centres, power infrastructure and related industries as evidence the AI buildout was already flowing through the broader economy.

At the same time, she warned geopolitical tensions, supply chain realignment and persistent inflation pressures had fundamentally altered the investment landscape, making broad market exposure alone insufficient.

"It's not really a simply story of risk-on or risk-off markets," Bernard said,

"You need to think about diversification at the country level, regional level, sector level and across asset classes."

Reflecting that view, Bernard said BlackRock's model portfolios have increased allocations to infrastructure, gold and selected emerging market equities, while trimming exposure to Australian equities in favour of areas where the firm sees stronger long-term growth opportunities and greater diversification benefits.