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Business Insider
28-05-2025
- Business
- Business Insider
2 trades helping BlackRock bond chief Rick Rieder generate 6.6% yield
This story is available exclusively to Business Insider subscribers. Become an Insider and start reading now. It's been a particularly busy start to the year for BlackRock's bond chief Rick Rieder — not that someone overseeing $3 trillion in assets has all that much spare time to begin with. The economic policy uncertainty that President Donald Trump has introduced has sent the bond market flailing in a way Rieder hasn't seen before. But the volatility isn't necessarily a bad thing. "There is change afoot," Rieder told BI. "One of the great things about investing in this environment is it's not static." "The reaction function to any piece of news can be really extreme," he continued. "So markets go through these periods of illiquidity, and it just presents these great opportunities that, by the way, may only be there for 10 minutes, or an hour, or a day. But I've never seen markets move to such extremes." Rieder shared a few of those opportunities he's leaning into at the moment in his iShares Flexible Income Active ETF (BINC), which yields 6.6% and has grown to $9 billion in assets since launching in May 2023. One of them is the front end of the yield curve, or short-duration Treasurys. Yields on the 2-year note had fallen from 4.3% last year to 3.6% in April as investors started to price in as many as five rate cuts from the Federal Reserve. But as rate-cut expectations have fallen, yields have risen back close to 4%, making them more attractive. Front-end bonds also offer a hedge for economic volatility in the short term, allowing investors to clip a robust coupon that they're not locked into for too long. The long end of the curve, meanwhile, isn't acting as a recession hedge right now, Rieder said, with investors worried about inflation from tariffs and rising yields thanks to ballooning fiscal spending deficits. "I'd rather keep yield up and not have to worry about the volatility," Rieder said. "The long end is not a hedge," he continued. "Its traditional offsetting risk function doesn't work today, and so until yields move significantly higher I don't see any significant reason to own longer in interest rates." Long-end rates in Europe, however, are more attractive, Rieder said. He said he's betting on European B and BB-rated high-yield bonds to deliver higher yields. This is because economic growth is slowing to a greater degree in Europe than in the US, and inflation is more tame, so the European Central Bank is likely to cut rates more aggressively. This has meant limited upside volatility for European rates. For example, while 10-year Treasury yields have surged from 3.99% to 4.43% since April 4, 10-year Eurozone bond yields have been virtually flat, falling by just three basis points from 3.13% to 3.1%. When yields rise, bonds lose their value, and vice versa. "Taking some of your interest-rate risk in Europe versus the US — particularly versus long US — has been an exciting thing to be involved with," Rieder said. "Usually, US and European rates move together," he continued. "Now you're seeing historic movements of European rates relative to the US, meaning European rates are much more stable." Plus, the dollar's weakness relative to the euro is icing on the cake. "Because of the cross-currency swap, you could buy Europe and you get a couple of percent of additional yield," Rieder said. To mitigate the downside risk of some of the higher-yield bonds in his portfolio, Rieder pairs them with high-quality assets like AAA collateralized loan obligations (CLOs), he said.
CNBC
19-05-2025
- Business
- CNBC
BlackRock's Rick Rieder says this is the 'sweet spot' in bonds right now
With the tariff-induced volatility in the rearview mirror, BlackRock's Rick Rieder has once again set his sights on high-yield bonds. Yet, he is sticking with those that have maturities of three to five years. That is because he expects more volatility in long-end rates. Yields on 10- and 30-year Treasurys spiked on Monday after Moody's downgraded the U.S. credit rating one notch to Aa1 from Aaa late Friday. The 30-year hit a high of around 5.03%, while the 10-year at one point topped 4.5%. Rieder, Blackrock's chief investment officer for global fixed income, had recently reduced some of the high-yield exposure in the exchange traded fund he manages, the iShares Flexible Income Active ETF (BINC) . The bonds were hit in early April after President Donald Trump announced his tariff policy, sending many investors fleeing to safer assets. BINC YTD mountain iShares Flexible Income Active ETF in 2025 Still, Rieder is convinced that any economic pullback will be short lived and thinks the U.S. economy is in good shape. He is now adding more higher-yielding assets back into his portfolio. "U.S. high yield is still attractive — but higher quality," he said. BB-rated bonds, the highest rated of the non-investment grade tranche, trades rich since it gets crossover buyers from investment grade, Rieder said. He doesn't own any CCC-rated bonds, which he said could see defaults if there is an economic slowdown. The B-rated segment is the "sweet spot," he noted. "You get yield," he added "Credit is in as good a shape as I've seen it in 30 years." BINC, which began trading publicly on this date two years ago and now has more than $9 billion in assets, currently has nearly 40% of its portfolio in high-yield corporates and loans. Of that, the majority is in U.S. high-yield corporate bonds. The exchange-traded fund has a 30-day Securities and Exchange Commission yield of 5.57% and a net expense ratio of 0.4%. Rieder likes agency mortgage-backed securities on the other side of high yield as a barbell approach. The assets are debt obligations backed by the government, meaning there is little credit risk. Their cash flows are tied to the interest and payment on pools of mortgages. "When rate volatility picks up, it can cheapen up mortgages," he said. "So we added some mortgage paper." Rieder has also recently been adding European sovereign bonds from Germany, as well as some peripheral sovereigns such as France, Ireland, Spain and Italy. He's focusing on the five- to 10-year part of the curve. "As a dollar investor, because of the FX [currency] swap … European rates are pretty interesting," Rieder said. After several years of negative interest rates, "now you're getting to buy yields with a steep yield curve," he added.
CNBC
30-04-2025
- Business
- CNBC
BlackRock says investors can profit from diversifying beyond the 60/40 amid volatility
The recent market turbulence has highlighted the importance of having a diversified portfolio, according to BlackRock. For many investors, that means looking beyond a traditional portfolio of 60% stocks and 40% fixed income, the firm said in a recent report. "Crucially, we believe investors can benefit from a more deliberate diversification strategy, where traditional asset classes may not meet the moment," the team wrote. Equities fell on Wednesday after data showed the United States economy contracted in the first quarter, raising concerns about a possible recession. Treasury yields were flat. Yields move inversely to prices. The moves were just the latest in the market's ups and downs as investors consider President Donald Trump's trade policy and ensuing tariff negotiations. Expanding beyond a basic 60/40 makes sense because stocks and bonds haven't had the negative correlation they once enjoyed — where bonds would provide a ballast if stocks tanked, said Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock. Not only that, there has been an increasingly positive correlation, she said. For instance, earlier this month stocks sank and bond yields rose, particularly on the longer end of the curve, Chaudhuri pointed out. That's led to a lot of clients asking, "what else?" she said. "[When] rethinking your 60/40, I think the starting place is important," Chaudhuri said. "What type of portfolio you're trying to build of that 60 — what part is in U.S. versus international," she added. "Of the 40, what part is in something traditional like an [ iShares Core US Aggregate Bond ETF ] AGG versus more shorter-duration, income-seeking solutions." Diversifying your portfolio There are several ways to diversify your portfolio to help hedge against volatility, Chaudhuri said. First, when looking at the fixed income portion, investors should concentrate on maturities in the 3- to 7-year range, she said. That allows them to focus on "the income of fixed income," she added. For instance, the iShares Flexible Income Active ETF has an effective duration of around 3 years. BINC YTD mountain iShares Flexible Income Active ETF In addition, a small exposure to inflation-linked bonds in the front end of the curve could also help protect against inflation, Chaudhuri said. Within equities, investors should make sure they also have international allocations in addition to U.S. stocks, she said. The percentage depends on the investor, she noted, but said most advisors are underweight international. Then, investors can consider adding sleeves of diversifiers in their portfolios, like gold, which has had a tremendous run of late. "Maybe it won't continue to go up at a straight line like it has, but certainly considering the diversifying properties, especially in a slowing growth, a rising inflationary world where you might want to reconsider the role of gold in a portfolio," she said. Then there are what Chaudhuri calls liquid alternatives that are market-neutral strategies that have a lower correlation to the S & P 500 . "When equity markets are going down, they will not follow that same path. So looking at strong alpha generators that have a very low beta to the equity as well as the bond markets," she said. These solutions can "significantly improve your portfolio outcomes by enhancing your performance … especially in a market down, but certainly in a market up scenario as well by utilizing different futures — basically long, short strategies across several sectors of the market, several parts of the capital stack in fixed income," she added. BlackRock has three of these strategies that it said delivered better annualized returns and lower annualized risk compared to the benchmark aggregate bond index in the past three years. The BlackRock Global Equity Market Neutral Fund (BDMAX) focuses on diversification through equity long and shorts in an effort to deliver attractive returns that have a lower correlation to broad asset classes. The BlackRock Tactical Opportunities Fund (PCBAX) also seeks a lower correlation between stocks and bonds with a mix of equities, sovereign bonds and currencies. Lastly, the BlackRock Systematic Multi-Strategy Fund (BAMBX) focuses on total return that includes income and capital appreciation. BAMBX YTD mountain BlackRock Systematic Multi-Strategy Fund The funds don't come cheap. The more accessible A-shares for the BlackRock Global Equity Market Neutral Fund have a 1.6% net expense ratio, while the BlackRock Tactical Opportunities Fund has a 1.09% and BlackRock Systematic Multi-Strategy Fund as a 1.2% net expense ratio. Still, diversifying beyond the 60/40 may not be for everyone, Chaudhuri said. "You could be an investor that's just starting your investing journey … and you want a simple liquid, one ticker solution," she said. In that case, something like the iShares Core 60/40 Balanced Allocation ETF (AOR) could work, she said. "They don't want to be thinking about rebalancing," she said. "It has your 60 and 40, and it's balanced." AOR .SPX YTD line iShares Core 60/40 Balanced Allocation ETF vs. S & P 500
