BlackRock says investors need to look beyond the 60/40. Here’s how it is diversifying portfolios right now
With bonds not doing their job as portfolio ballasts, investors need to “diversify their diversifiers,” according to BlackRock’s Gargi Chaudhuri. The correlation between stocks and bonds , which hasn’t been reliable in recent years, weakened meaningfully at the start of the Iran war, BlackRock said in its spring outlook Wednesday. The 20-day rolling stock-bond correlation rose to 0.72 in late March — its highest level since May 2024, the firm said. That means investors need “a whole host of diversifiers,” said Chaudhuri, BlackRock chief investment and portfolio strategist, Americas. “The same things that may have worked in different periods, different volatility shocks may not work this time around,” she said. “Obviously gold worked for the quarter, but did not work for the month of March. It has worked very well since then.” Gold, traditionally seen as a safe haven, fell more than 10% in March. It was its worst month since 2013. IAU YTD mountain iShares Gold Trust ETF year to date These days, BlackRock is telling clients to add liquid alternatives to their portfolios. Liquid alternatives are mutual or exchange-traded funds that employ strategies similar to that of hedge funds, but they have daily liquidity and lower investment minimums. The idea is to find a way to make some money, even if the S & P 500 is falling, Chaudhuri explained. “The portfolio manager for the strategies have the ability to look at, ‘OK, here the number of stocks that are going to more likely go up, sectors that are likely to go down. Let me play the things that are going to do well versus the things that are not going to do as well,” she said. “Their job is to really give you positive returns … without taking a huge amount of directional view,” she added. “So you’re not always going in the same direction of the S & P 500.” BlackRock’s liquid alternative ETF is the iShares Systematic Alternatives Active ETF (IALT), which was launched in December. It has 95% of its assets in cash and/or derivatives, as of April 16. The ETF had a total return of 9.31% year to date, a 2.78% 30-day SEC yield and 0.99% expense ratio. IALT YTD mountain iShares Systematic Alternatives Active ETF year to date Structuring your portfolio Investors should first assess their stock and bond allocations, Chaudhuri said. Then, if they want to add liquid alts to their portfolio, they should think about how they should source it, she advised. “We have a lot of conversations about, ‘should I be taking this from my 60 or my 40?'” she said, referring to the traditional 60% stocks and 40% bonds allocation. “What we tell clients is you should take a little bit from each so that you’re not diluting either your 60 or your 40 too much.” The starting point, whether it is a 2% allocation or a 10% allocation, would really depend on what else they hold, Chaudhuri noted. Anything below 2% is really low, she added. With gold, investors should understand that because it is a single asset, unlike a liquid alt ETF, it can be more volatile. BlackRock still believes in the structural case for gold and with more attractive entry levels, it favors the precious metal as a diversifier. Still, Chaudhuri suggests making gold a small portion of the portfolio. “You should be pretty thoughtful about how much you want to allocate to just one asset class,” she said. “I have seen portfolios that own between 1[%} and 3% — not more than that,” she said.
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