Riding Asia, without riding the rollercoaster

• Asia’s AI semiconductor rally remains compelling, but repeated drawdowns have made the holding experience difficult for many investors.

• The BlackRock Systematic Asia Pacific Equity Absolute Return Fund (SEAR APAC) is not a replacement for core Asia equity exposure — it is best understood as a complementary allocation that allows investors to add Asia exposure without proportionally increasing portfolio volatility.

• The fund captures returns through stock selection across Asia Pacific equity markets, rather than depending on market direction — with near-zero historical correlation to broad Asian equity indices.

• Its historical resilience during equity sell-offs and positive yearly returns make it relevant for investors who want Asia exposure with a smoother return path.

Asia tech is real, but the ride has been volatile

Asia technology has had an extraordinary year. KOSPI surged more than 110% from its January lows before pulling back sharply, and remains up approximately 55% year-to-date as of 24 July 2026. The AI semiconductor story is real — but so is the volatility that comes with it.

But for many investors, the challenge is no longer whether the story is real. The challenge is whether they can stay invested through the volatility.

In 2026 alone, KOSPI has already experienced three sharp drawdowns: around 20% from February to March, around 15% in early June, and a drawdown of 27% as of 24 July 2026. The repeated double-digit drawdowns can be difficult to sit through, especially after a strong rally and at elevated valuations.       

An investor who wants Asia exposure has a practical problem: the volatility is severe enough that many retail investors either cannot size their position as large as their conviction warrants, because the drawdowns are too painful to hold through, or end up selling at the worst moment and missing the subsequent rally. The result is that their actual realised return can be worse than the index return, because they bought high, sold low under pressure, and missed the rebound.

This is where the BlackRock Systematic Asia Pacific Equity Absolute Return Fund, or SEAR APAC, becomes relevant. SEAR APAC does not solve this by replacing the long-only position. It solves this by allowing the investor to add Asia exposure in a form that reduces the volatility of the total portfolio.

Adding to your Asia exposure without adding to the volatility

SEAR APAC is a systematic Asia Pacific equity long/short fund. Instead of simply buying the market, the fund uses BlackRock's quantitative model to identify stocks expected to outperform and stocks expected to underperform across Asia Pacific equity markets. It goes long the stocks the model finds attractive, and shorts the stocks it finds less attractive, generating returns from stock selection rather than market direction.

Since the fund is designed to generate returns through stock selection, independent of broad market direction, the fund has near-zero correlation with the broad market.

This is also why SEAR APAC is worth considering alongside, not instead of, a long-only Asia position. Think of it this way: a long-only Asia ETF gives you the market return — the full upside and the full drawdown. SEAR APAC gives you a separate return stream that comes from the model's ability to pick relative winners and losers within Asia. The two are largely uncorrelated.

For investors who already hold Asia equities but whose volatility tolerance limits how much exposure they can comfortably maintain, SEAR APAC offers a way to increase their total Asia allocation without proportionally increasing the volatility of the total portfolio. The smoother ride is not just about investor comfort — it is about staying invested long enough to participate in the full cycle, including the sharp rebounds that follow every sell-off.

Resilience during stress periods

The most useful way to understand the strategy is to look at how it behaved during stress periods.

During the COVID crash, the MSCI AC Asia Pacific Index (MSCI APAC) fell 30.2%, while SEAR APAC declined by a much smaller 5.7%. During the 2022 rate-hike shock, the index fell 31.5%, while SEAR APAC delivered a positive return of 10.1%. During the 2025 Liberation Day shock, the index fell 14.0%, while SEAR APAC posted a modest loss of 0.7% — smaller than the index, but a genuine loss, not a gain. During the 2026 Iran War shock, the index fell 13.0%, while SEAR APAC returned a positive 1.6%.

Across all four episodes, SEAR APAC outperformed the index — declining less in two, and posting a positive return in the other two while the index fell sharply. This does not mean the fund is risk-free — SEAR APAC still declined 5.7% during the COVID crash, a real loss even though it was smaller than the index's. But historically, it has behaved differently from traditional Asia equity exposure during periods of market stress.

Chart 1: During four major market stress events since 2020, SEAR APAC demonstrated resilience.

Not just downside protection

SEAR APAC should not be viewed purely as a defensive product. Looking at calendar-year returns, the fund has delivered positive returns across recent years, including periods when equities struggled. It has delivered attractive returns over the past five years ended 30 June 2026 — an annualised return of 11.47% at an annualised volatility of 4.75%, generating a Sharpe ratio of 1.72, while remaining largely uncorrelated to both equities and bonds (see below).

Chart 2: Since inception in February 2017 to July 2026, SEAR APAC delivered positive returns in seven out of eight full calendar years.

 

*Past performance is not indicative of future performance. Fund returns may fluctuate, and investors may not recover the full amount invested.

Low correlation is the key portfolio benefit

SEAR APAC’s historical correlation to MSCI APAC has been close to zero over the past five years. Its correlation to the Hang Seng Index is slightly negative. Its correlation to global bonds is also close to zero. Its correlation to KOSPI — the single market driving most of this year's Asia tech volatility — is also negative, at -0.16. This matters because many funds appear diversified on the surface, but still move in step with the broader market when it falls.

SEAR APAC provides a return stream that is much less dependent on whether Asia equities rise or fall. For investors who already own Asia equities, this is the key portfolio benefit.

It is not simply another way to buy Asia. It is a different return stream within the Asia opportunity set. The fund may still benefit from opportunities within Asia technology and industrials, but it is not designed to capture the full upside of a one-way Asia tech rally.

Chart 3: The fund shows low to zero historical correlation with broad markets.

Correlation	SEAR APAC	MSCI APAC	Hang Seng	S&P 500	Global Agg	KOSPI
SEAR APAC	1
MSCI APAC	-0.07	1
Hang Seng	-0.12	0.61	1
S&P 500	0.11	0.70	0.23	1
Global Agg	-0.01	0.75	0.46	0.64	1
KOSPI	-0.16	0.52	0.04	0.40	0.30	1

Source: Bloomberg Finance L.P., iFAST Research Compilations.

Data as of 30 June 2026

How the model works

BlackRock's model evaluates and ranks more than 4,500 stocks across the Asia Pacific universe. Each stock receives a score — an estimate of its expected return relative to peers — based on four dimensions: company fundamentals, market sentiment, macro themes, and ESG considerations.
These scores are then fed into an automated optimisation framework alongside risk models and transaction cost estimates. The output is a portfolio that seeks to maximise expected alpha while keeping unwanted risks — such as excessive exposure to any single country, sector, or style factor — within defined bounds. The process is systematic, disciplined, and repeatable by design.
Human portfolio managers do not pick stocks. Their role is oversight: verifying that model inputs are clean, reviewing the recommended portfolio and trade lists, and ensuring the process is running as intended. BlackRock's trading team works alongside them to manage execution quality and minimise market impact. Human intervention in the actual investment decisions is reserved for exceptional circumstances — and even then, the purpose is to reduce risk, not to express a discretionary stock view.

Risks

Like any investment strategy, SEAR APAC carries risks investors should understand. As a synthetically constructed fund using contracts for difference, it is exposed to counterparty risk — in a stress scenario, the failure of one or more of its five major counterparties could result in financial loss.
Being a systematic strategy, the fund is also subject to crowding risk and model risk. In 2019, forced selling by distressed competitors who held overlapping positions dragged down the fund's returns — prompting BlackRock to add a signal that penalises holdings commonality going forward.
In November 2020, the Pfizer vaccine announcement triggered a sudden momentum reversal the model was initially slow to capture, with recovery taking approximately two to three months. These episodes are worth noting to set realistic expectations: systematic models can struggle when market dynamics shift abruptly in ways that fall outside historical patterns.

Final Positioning

SEAR APAC is not a replacement for core Asia equity exposure. Investors who want full participation in the Asia semiconductor rally — capturing every point of the upside when KOSPI surges or TSMC re-rates — should hold long-only Asia equities as their primary vehicle. That remains a separate and legitimate decision.

The more useful question is not whether to hold SEAR APAC instead of Asia equities, but whether to hold it alongside them.

Consider an investor who is genuinely convinced by the Asia semiconductor story but is constrained in how much exposure they can comfortably maintain. The constraint is not conviction — it is the holding experience. For many retail investors, drawdowns of this magnitude create real behavioural pressure — the temptation to reduce exposure at exactly the wrong moment, missing the sharp rebounds that have historically followed each sell-off. The problem is not that they lack conviction. The problem is that the volatility makes the position difficult to hold at full size.

Position sizing alone does not solve this. Reducing the size of the long-only position does lower the volatility of that sleeve — but it also proportionally reduces the return on the conviction. The investor ends up with a smaller Asia position than their view warrants.

This is where SEAR APAC offers a different solution. Because its returns are largely uncorrelated to Asian equity markets, adding SEAR APAC alongside a long-only Asia position increases the total Asia allocation without proportionally increasing the total portfolio volatility. The investor maintains their conviction-sized long-only position for the full market upside, and adds SEAR APAC for the uncorrelated alpha on top. The combined portfolio has a smoother return path than the long-only position alone — not because the long-only position is smaller, but because the second return stream moves independently of it.

The smoother ride is not just about investor comfort. It is about staying invested long enough to participate in the full cycle. The investor who holds through a 6% portfolio drawdown instead of a 30% drawdown is far more likely to still be positioned when the rebound comes. SEAR APAC does not capture the rebound — the long-only sleeve does. SEAR APAC is what makes the long-only sleeve easier to hold.

In short: for investors with a genuine Asia conviction, SEAR APAC is not an alternative to that conviction. It is what allows them to act on it more fully — with a stronger position, held more steadily, across the full market cycle. Investors should consider their own financial circumstances and consult a financial adviser before making any investment decision.

Table 1: Fund factsheet is displayed below.

Fund Factsheet
Strategy	Long/Short Market Neutral
Universe	Asia Pacific Equities
Process	Quantitative
Fund	BSF - Blackrock Systematic Asia Pacific Equity Absolute Return A2 USD
Fund Inception Date	22 February 2017
Management Fee	1.50% p.a.
Performance Fee	20% (subject to High Water Mark)
Target Return	Cash Rate + Alpha
Target Volatility	6–8% p.a.
Target Beta	0
Benchmark / Hurdle Rate	3M SOFR Compounded in Arrears + ISDA Spread (USD)
Fund AUM	USD 1,968.2M (as of June 2026)
Liquidity	Daily

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools.  iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.