The 60/40 Portfolio Is Dying — BlackRock Just Revealed What's Next

**SPEAKER_1** (0:00)
All right, let's bring our guest up, shall we?
Hey, how's it going? Hi, good afternoon.

**SPEAKER_2** (0:07)
How you feeling, man?

**Jay Jacobs** (0:09)
I'm great, how are you guys?

**SPEAKER_4** (0:11)
Very good, glad to have you here.

**Jay Jacobs** (0:12)
It's good to be back. I was on the show last year, and lucky enough to be invited back again.

**SPEAKER_2** (0:18)
Yeah, we appreciate you being here again.

**SPEAKER_1** (0:19)
Appreciate you having me. Jay Jacobs, US Head of Equity, ETFs at BlackRock.
Yes, pleasure to have you back. How are you doing?

**Jay Jacobs** (0:29)
I'm doing well. Markets are good. Weather is good. Tough to complain.

**SPEAKER_1** (0:33)
For sure. So let's get into it. You're the head of equity ETFs at BlackRock. It's been a great ride over the last year, two years, really. Since COVID actually, it's just been up. Friday was a short reset. Everybody's talking about a bubble.
Panic, fear, saying that it's too good to be true. AI valuations.
How are you looking at the space right now for your ETF portfolio that you guys have in BlackRock and just the market overall?

**Jay Jacobs** (1:10)
Sure. Well, first off, if you go back 10 years, the average return that an investor got buying the S&P 500 was over 15 percent. That's not normal. That's like double what's normal. It's been a tremendous ride for investors, frankly, just doing the most basic form of investing, which is just getting exposure to a broad asset class like US stocks.
But a lot has changed over the last 10 years. In fact, one of the things I think has changed the most is how we think about resilience in the markets. Historically, if you wanted to build a diversified portfolio, you'd buy some stocks and you'd buy some bonds. Usually, those two things move in opposite directions which gives you good diversification. But we've seen over the last couple of years, the stocks and bonds are moving together. It's really hard to get a more diversified portfolio to weather the storm of the sell-offs that we've seen here and there over the last couple of years. On top of that, we've seen bouts of volatility, whether it's because of trade relationships, whether it's because of AI, whether it's because of economic doubts. People have been trying to navigate that.
And then, third, I think a lot of people are just trying to understand where the world is headed. There's so much new technology, there's so much change. People are trying to make more resilient portfolios that can stay out ahead of all that change. So over the last 10 years, again, a really simple portfolio just did great. Just owned stocks, have stocks bonds. It was really simple. I think things have gotten a little bit more complicated for investors, but that doesn't mean there isn't more opportunity. People just have to think about the world a little bit more granularly than they did in the past.

**SPEAKER_1** (2:51)
So are you nervous or concerned that we could have a major cliff moment where the stock market goes down 40% in one year?

**Jay Jacobs** (3:04)
I mean, volatility has never added the question. I think overall, we see that the market is resilient. We've seen a tremendous earnings environment over the last quarter or so. Companies are delivering earnings much faster than people expected.
You were asking about a bubble, usually that's tied to artificial intelligence. We actually don't see there's a bubble. AI companies grew their earnings faster than their stock prices went up last year. That means valuations actually came down because their earnings were going up faster than their stock price. So like a stock per earning ratio was cheaper. A lot of this is justified. These AI companies are delivering just tremendous amounts of growth. We looked at one AI company, the unit of sales for an AI company is tokens, right? It's kind of a unit of intelligence. They grew their token sales last year 17x. Like a high growth company usually grows 17%. This was 17x in AI tokens. And yes, AI companies are growing really quickly.
Yes, we've really never seen this kind of rapid escalation and a theme like this, but so far it looks fairly justified given the rapid adoption of artificial intelligence and the total market opportunity.

**SPEAKER_2** (4:25)
It feels like AI is in all rights a defining investment theme of our lifetime, right? Every time you listen to professionals and you kind of just alluded to it, we've never seen anything like this before. Like this is such a new thing, the way that these companies are growing. Like you said, the revenue is incredible. The multiples are incredible. What also has happened is the creation of ETFs.