BlackRock’s Model Portfolios Shift Billions Into Value Stocks


(Bloomberg) — The world’s biggest asset manager just triggered a $5 billion reshuffle in its lineup of quant-style ETFs as the resilience of the US economy boosts the outlook for value shares.

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Roughly that amount moved to a pair of BlackRock Inc. funds on Thursday, one of which tracks cheap-looking stocks while the other rotates between different investment style factors, according to data compiled by Bloomberg. The churn reflects an adjustment to holdings in the firm’s model portfolios, a person familiar with allocations said.

“We’re switching the growth style over to value to reflect a bullish view on the economy and a soft landing,” Michael Gates, lead portfolio manager for BlackRock’s Target Allocation ETF model portfolio suite wrote in an investment outlook Friday. “We remain optimistic and overweight stocks. This means we keep our heavy US tilt in portfolios, but consolidate some bets as we expect choppy markets over the first half of the year.”

Model portfolios bundle together an issuer’s funds to form ready-made strategies that make it quick and easy to invest. They have surged in popularity in recent years, with BlackRock alone having about $100 billion in assets in them.

That means even a small adjustment to the strategy can create dramatic flows. In this case, the iShares S&P 500 Value ETF (ticker IVE) and the BlackRock US Equity Factor Rotation ETF (DYNF) took in $2.9 billion and $1.9 billion on Thursday, the data show.

On the same day, the iShares MSCI USA Quality Factor ETF (QUAL) bled about $2.2 billion and the iShares S&P 100 ETF (OEF) lost $1.5 billion. The team is selling down its factor-like exposures in favor of buying DYNF instead, according to Gates.

Building optimism that the Federal Reserve’s interest rate hikes have cooled inflation without harming growth have helped propel the S&P 500 to fresh record highs. Economic data out Friday bolstered those expectations, with the Fed’s preferred gauge of underlying inflation slowing to an almost three-year low last month even as personal spending topped estimates.

Even with the shift to value-oriented shares, BlackRock’s model team is keeping its overweight in tech stocks. The outlook for forward earnings remains “brightest” in the US markets and specifically in the tech sector, Gates wrote.

Outside of equities, the actively managed BlackRock Flexible Income ETF (BINC) — helmed by Rick Rieder — was added into the mix, taking in a record $455 million on Thursday.

“We are selling benchmark exposures to bonds and credit to fund the purchase of BINC,” Gates wrote. “This rebalance reflects a high-conviction preference for adding risk and in the fixed income space, more credit risk through diversified sources of spread return.”

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