Market Overview and Impact

Key takeaways:

• Modestly reducing target equity overweight from 5% to 2.5%, taking a measured approach to risk amid a more uncertain environment 
• Remaining broadly constructive on US and emerging market equities over the medium term as fundamentals remain supportive
• Adding back duration to a neutral stance to help protect the portfolio against a potential growth shock
• Maintaining allocation to inflation-linked bonds to hedge against rising inflation risks stemming from the Middle East conflict

Global markets have experienced a pronounced shift in recent weeks, with heightened geopolitical tensions in the Middle East, driving volatility and broad-based market corrections across regions and sectors. As the conflict stretches into subsequent weeks, it has generated substantial noise across risk assets, at times overshadowing the underlying fundamentals of the regions and sectors that anchor BlackRock’s allocations. Despite near-term challenges, they continue to see a resilient macro and earnings backdrop and remain constructive on equities over the medium term.

That said, elevated geopolitical uncertainty has raised the risk of a potential growth shock. While this is not BlackRock’s base case, it warrants a more cautious and measured approach given the uncertain rate and inflation outlook. Accordingly, they are reducing their target equity overweight from 5% to 2.5%, taking advantage of the recent rebound in equity markets.

Conservative, Balanced and Aggressive Portfolios

Performance Commentary

In equities, BlackRock remains constructive on the medium-term outlook for US equities and emerging markets (EM). Within US equities, they are shifting away from small-cap towards broader market-cap exposures, given that the former have historically underperformed in tighter interest rate environments.

Escalating tensions in the Middle East have driven oil prices higher, creating additional inflationary pressure and lowering the probability of medium‑term Federal Reserve (Fed) rate cuts. Meanwhile, BlackRock is also reducing exposures to European equities to fund the reduction in their overall equity overweight, given Europe’s vulnerability as a net energy importer in an environment of high energy prices. They continue to favour emerging markets equities, which offer attractive earning prospects and valuations, though they are modestly reducing their degree of overweight to reflect potential currency headwinds and the pressures facing major energy-importing economies.

Within fixed income, to protect the portfolio from potential growth shocks, BlackRock is adding back some cash proxies and increasing duration exposure through US Treasuries across tenures, which can serve as a hedge against such risk. In turn, they are reducing their credit exposures amid the risk of widening spread and potential downgrades, trimming their aggregate bond exposures. They are also reducing their allocation to EM bonds, shifting from a more constructive stance to a neutral one, as a potentially more hawkish Fed and a stronger US dollar could tighten financial conditions for EM economies and raise their funding costs.

BlackRock maintains a basket of diversifiers to seek returns beyond traditional equities and bonds. In this context, they are retaining their allocation to gold as an additional source of diversification and a safe-haven asset during periods of heightened geopolitical uncertainty. They also keep exposure to inflation-linked bonds to help mitigate persistent inflation risks.

Very Aggressive Portfolio

Reoptimisation Commentary

BlackRock remains constructive on the medium-term outlook for US equities and EM. Within US equities, they are shifting away from small-cap towards broader market-cap exposures, given that the former have historically underperformed in tighter interest rate environments.

Escalating tensions in the Middle East have driven oil prices higher, creating additional inflationary pressure and lowering the probability of medium‑term Fed rate cuts. Meanwhile, they continue to favour emerging markets equities, which offer attractive earning prospects and valuations, though they are modestly reducing their degree of overweight to reflect potential currency headwinds and the pressures facing major energy-importing economies.

Source: BlackRock. Rebalance date is 13 April 2026.

This information should not be relied upon as investment advice, research, or a recommendation by BlackRock regarding (i) the iShares Funds, (ii) the use or suitability of the model portfolios or (iii) any security in particular. Only an investor and their financial advisor know enough about their circumstances to make an investment decision. Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy.

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