Investors should be more thoughtful in how they diversify their portfolios these days, according to BlackRock’s new fall outlook . Many portfolios relying on traditional constructions have become riskier, thanks to a heightened uncertainty and the shift in the relationship between stocks and bonds, said Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock. The typical balanced portfolio consists of 60% stocks and 40% fixed income. It also tends to rely on U.S. assets, she noted. “Correlations that have been very prevalent in the marketplace for decades are not as reliable as they once might have been,” Chaudhuri said in an interview with CNBC. “What that means … is just being a little more deliberate about where you source your equity risk and where you source your fixed-income risk — and then being very mindful of adding alternatives.” Prior to the pandemic, bonds moved in the opposite direction of stocks about 50% of the time, providing diversification, she said. Post-pandemic, they have moved in the same direction 70% of the time, she said. “Therefore, you need other things in your portfolio and some of those could be categories like alternative assets,” Chaudhuri said. “It could be moving away from traditional bonds on the very long end of the curve to more core-plus-like strategies.” Think of it more as a retooling of your portfolio than changing everything, she noted. Focus on income For the fixed-income portion of the portfolio, investors should look for income generation in the belly of the curve, with durations ranging from three and seven years, Chaudhuri said. They should also think beyond core U.S. bonds, which most domestic investors use for their fixed-income portfolios, she said. That means adding some international exposure and selectively buying high-yield bonds, she added. Within the latter, Chaudhuri likes the B-rated and BB-rated parts of the market. “We like the all-in yields, but we recognize that spreads are tight,” she said. However, September and the early parts of October have historically been periods when spreads have widened, because a lot of issuance comes into the market, she noted. “This probably creates an opportunity, especially in this income-starved market, where so many investors are still sitting in cash,” Chaudhuri said. Within investment-grade bonds, she is going down a little in quality to BBB instead of staying in A-rated bonds, to gain more income. Securitized products are also attractive, particularly collateralized loan obligations , she said. CLOs are securitized pools of floating-rate loans to businesses. Because their coupon payments shift alongside short-term interest rate changes, they don’t carry interest-rate risk. CLOA YTD mountain iShares AAA CLO Active ETF year to date “If you look at the highest part of the capital stack in CLO — so looking at A rated or even high-quality B-rated — you can build a portfolio with securitized assets that are very highly rated that can yield you about 6%,” she said. Lastly, money devoted to international bonds can add additional diversification, Chaudhuri said. “If you convert the returns back to U.S. dollar, really allocating to European markets, to UK markets, really can add that carry in your portfolio, which we think makes sense,” she said. She would focus on a broad international market exposure, like the iShares Core International Aggregate Bond ETF . IAGG YTD mountain iShares Core International Aggregate Bond ETF year to date Stick with growth in equities Picking the right spots matters in the equity portion of your portfolio. BlackRock continues to favor large-cap growth stocks and is bullish on the artificial-intelligence theme because, despite stretched valuations, large cap growth has been the driver of earnings expansion. Earnings are “the North Star” for equity allocations, Chaudhuri said. This month may also deliver opportunities to buy, since September has historically been a volatile month, making the market potentially vulnerable to pullbacks, she noted. “This could be a good time to think about those fundamentally strong parts of the market that are supported not just by multiple expansion, but actually by earnings strength,” she said. Investors should also consider adding international stocks to their holdings, which can provide a better diversification to U.S. large-cap stocks than U.S. small-caps, Chaudhuri said. “The dollar usually moves in multi-year cycles and we might just be at the beginning of one,” Chaudhuri said. A weaker greenback helps boost returns when foreign currencies are converted back into the U.S. dollar, so long as the currency risk is unhedged. Adding alternatives Adding some alternatives can help combat the correlation issues and heighten portfolio diversification, Chaudhuri said. They can include digital assets, gold and private credit. It may also include what BlackRock calls liquid alternatives, which are market-neutral strategies that deliver alpha, (or the outperformance of an investment above a benchmark index), such as its Global Equity Market Neutral Fund . BDMAX YTD mountain Global Equity Market Neutral Fund year to date Market flows of funds have started to reflect that trend towards alternatives, BlackRock’s analysis shows. From 2016 to 2019, more than two thirds, or 69%, was in equities and 31% in fixed income. In 2025, that has shifted to 62% stocks, 30% fixed income and 8% alternatives. Investors should think about the correlation of the alternative they are considering to the traditional assets in their portfolios, Chaudhuri advised. For instance, gold has moved higher this year thanks to macroeconomic uncertainty with regard to trade and geopolitics, and the recognition that it can be a hedge against stagflation, when inflation stays elevated and growth is sluggish. Gold has also benefited from a recognition that central banks will continue to diversify their reserves away from the U.S. dollar, she said. “That’ll do something different than private credit, which has lower correlations to some of the public equity markets, but certainly will have a more positive correlation to fixed-income markets and that’ll give you that income in your portfolio in a bespoke manner,” Chaudhuri said.
