BlackRock Diversified ESG Growth Fund (BAR0813AU) Report & Performance

The BlackRock Diversified ESG Growth Fund recorded a positive return for July of 2.15% (after fees). Markets trended higher and the global economy remained resilient despite headwinds from central banks which continued to lift policy rates. In terms of absolute performance, growth assets realised gains across the period, namely Global Equities, Australian Equities and Emerging Market Equities. Global Property and Global Infrastructure also contributed over the month. The Fund’s more defensive asset classes added to performance in July, including Australian Inflation Linked Bonds, Global High Yield Corporate Bonds, Australian Investment Grade Corporate Bonds and Australian Fixed Income. US Inflation Linked Bonds modestly detracted over the month, while the defensive allocation to Gold further contributed across the period. On the active front, the Fund modestly underperformed its diversified benchmark over the month by -0.04% (after fees). Australian Equities was the largest contributor in July, as the Australian systematic strategy benefitted from sector positioning across Materials and Financials, while machine learned Timing insights contributed.

The Fund’s global macro strategy added to alpha. This strategy takes overweight and underweight positions across asset classes and regions (i.e. tactical asset allocation). Global Infrastructure also modestly contributed while active returns for Global Property and Global High Yield were roughly flat across the period. Emerging Market Equities was the largest detractor from active returns in July, driven by the Fund’s fundamental equities strategy. Stock selection in Korea, India and China detracted, while positioning across Information Technology and Consumer Discretionary weighed on active performance. Global Equities modestly detracted over July, particularly via the global fundamental strategy, which was hampered by stock selection in Utilities and Industrials. This was partially offset via the global systematic strategy which outperformed over the period.

The BlackRock Diversified ESG Growth Fund recorded a negative return for May of -0.71% (after fees). Global markets were weaker over the month, with US debt ceiling uncertainty and softer economic data in China weighing on sentiment. In terms of absolute performance, growth assets were negative across the period, with losses driven by Australian Equities, Global Infrastructure and Global Property. Global Equities and Emerging Market Equities contributed in May from an unhedged perspective, supported by a narrow rally in mega-cap tech stocks and the depreciation of the Australian dollar.

The Fund’s more defensive asset classes detracted from performance, including US Inflation Linked Bonds, Australian Fixed Income, Global High Yield Corporate Bonds and Australian Investment Grade Corporate Bonds, as fixed income markets broadly declined. The defensive allocation to Gold added modestly over the month. On the active front, the Fund outperformed its diversified benchmark over the month by 0.10% (after fees). Emerging Market Equities was the largest contributor to active returns in May, driven by the Fund’s fundamental equities strategy.

Stock selection in Brazil and Taiwan contributed, while an overweight to Information Technology and stock selection in Healthcare were also additive. Australia Equities added to alpha, as the Australian systematic strategy benefitted from sector positioning. Global Property outperformed its underlying benchmark, primarily driven by security selection within the APAC region.

The Fund’s global macro strategy also contributed. This strategy takes overweight and underweight positions across asset classes and regions (i.e. tactical asset allocation). Global Equities detracted from alpha over May, particularly via the global fundamental strategy. A combination of stock selection in, and an underweight to Information Technology detracted the most from active returns, followed by stock selection in Consumer Discretionary. Global Infrastructure and Global High Yield also realised negative active returns across the period.

The BlackRock Diversified ESG Growth Fund recorded a positive return for April of 1.90% (after fees). Investor sentiment held steady over the month, with global markets grinding higher despite the uncertain outlook and mixed economic data. In terms of absolute performance, Growth assets realised gains across the period, with positive performance driven by Global Equities and Australian Equities. Global Property and Global Infrastructure also contributed in April. Although fixed income markets experienced intramonth volatility, the Fund’s more defensive asset classes were additive, which included Global High Yield Corporate Bonds, Australian Investment Grade Corporate Bonds and Australian Fixed Income.

The defensive allocation to Gold and Cash further contributed over the month. On the active front, the Fund outperformed its diversified benchmark over the month by 0.04% (after fees). The Fund’s global macro strategy (implemented through the BlackRock Tactical Opportunities Fund) was the largest contributor to active returns in April. This strategy takes overweight and underweight positions across asset classes and regions (i.e. tactical asset allocation). Australia Equities added to alpha, particularly via the Australian systematic strategy (implemented through the BlackRock Australian ESG Alpha Tilts Fund). Gains came from a number of sectors, including Materials and Financials, while overweights in Real Estate and Industrials further contributed. Global Property also outperformed its underlying benchmark, primarily driven by security selection within the Americas region, namely US Healthcare and Consumer REITS although partially offset by Industrials.

Global High Yield contributed while Global Infrastructure was relatively flat across the period. Emerging Market Equities detracted from alpha, driven by the Fund’s fundamental equities strategy (implemented through the BGF Emerging Market Sustainable Equity Fund). Stock selection within China and Taiwan and an underweight to Saudi Arabia weighed on active returns. Global Equities also modestly underperformed.

The Fund employs BlackRock’s climate-aware capital market assumptions, or long-term estimates of asset class expected return and expected risk, as a key input into the portfolio’s design. This enables the manager to incorporate its assessment of the expected impact of climate change on asset classes into the Fund’s strategic asset allocation process. The Fund’s investment strategy accesses various asset classes by investing in other pooled investment vehicles (Underlying Funds), including those managed by us or other entities within the BlackRock Group. The strategy invests across a range of active and index investment strategies to construct the portfolio’s strategic asset allocation. Each active strategy utilises a disciplined approach to investing that aims to add value over the strategic allocation, whilst controlling risk. In addition to long only active funds, Underlying Funds may also include exposure to a diversified range of absolute return strategies seeking the Fund’s overall performance objective. The selection of an Underlying Fund for inclusion in the strategy is the result of a comprehensive due diligence process. The assessment of ESG considerations is considered in the due diligence process for selection of Underlying Funds.

The BlackRock Diversified ESG Growth Fund recorded a negative return for February of -0.72% (after fees). Markets sold off over the month and investors faced several headwinds as strong economic data drove a repricing higher in interest rates. In terms of absolute performance, the Fund’s more defensive asset classes, namely Australian Inflation Linked Bonds, US Inflation Linked Bonds, Australian Fixed Income and Global High Yield, experienced losses as the sharp rise in rates saw bond prices fall. The defensive allocation to Gold also detracted. Growth assets declined over the period, including Australian Equities, Global Equities and Emerging Market Equities. The depreciation in the Australian dollar helped offset the fall in global share prices, with the unhedged allocation to Global Equities outperforming the hedged allocation.

Global Property realised gains over the month, while Global Infrastructure was relatively flat. On the active front, the Fund outperformed its diversified benchmark over the month by 0.42% (after fees). Global Equities was the largest contributor to active returns over February, driven by active positioning within the Fund’s allocation to global systematic equities (implemented through the BlackRock Sustainable Advantage World Equity Fund). The Sentiment complex, generic momentum and revisions signals delivered robust results as the Fund was well positioned to take advantage of the momentum trade. Australia Equities added to alpha, particularly via the Australian systematic strategy (implemented through the BlackRock Australian ESG Alpha Tilts Fund). Gains came from a number of sectors, including overweights in Consumer Discretionary (hotels, restaurant and leisure) and Real Estate (office REITs). Overweights in Financials (capital markets, insurance, and services) were also additive. Global Property also outperformed its underlying benchmark, primarily driven by the APAC region given an overweight to Australian Communications which benefited from strong earnings and a positive tenant outlook. Global Infrastructure and Global High Yield were relatively flat across the period. The Fund also invests in a global macro strategy (implemented through the BlackRock Tactical Opportunities Fund) that takes overweight and underweight positions across asset classes and regions (i.e. tactical asset allocation). This sub-strategy recorded positive active returns over the month.

The BlackRock Diversified ESG Growth Fund recorded a positive return for the quarter of 5.22% (after fees). Global markets rose over the final quarter of 2022, supported by the unwinding of China’s zero-COVID policy and softer inflation data. However, growing recession fears ahead of 2023 saw both growth and defensive assets retrace gains in December. Growth assets performed strongly over the quarter, with positive performance driven by Australian Equities, International Equities and Emerging Market Equities. Global Infrastructure realised modest gains in Q4, while Global Property was roughly flat across the period. The Fund’s more defensive asset classes, namely Australian Inflation Linked Bonds, US Inflation Linked Bonds, and Global High Yield, also outperformed over the period.

The defensive allocation to Gold contributed to the Fund’s performance. On the active front, the Fund modestly outperformed its diversified benchmark over the quarter by 0.01% (after fees). Stock selection within Global Equities and Australian equities detracted from active returns over Q4, which was partially offset by active positioning within Emerging Market equities. Global Property also underperformed its underlying benchmark, while Global High Yield contributed to alpha across the period. The Fund also invests in a global macro strategy that takes overweight and underweight positions across asset classes and regions (i.e. tactical asset allocation). This sub-strategy contributed over the quarter.