Search Form

Outcome-Oriented Investing

Why do you invest? In all likelihood, you’re motivated by a specific goal, like saving for retirement, funding your children’s education or generating enough income to pay your bills. It is less likely that your specific aspiration is to beat a particular market average, or benchmark.

And that makes perfect sense.

It’s easier for people to say, ‘I want equity-like returns without all the volatility,’ or ‘I’m retired and need to generate income’ than it is to choose a benchmark that may or may not be able to produce that result,” says Frank Porcelli, head of BlackRock’s U.S. Wealth Advisory business.

And that’s precisely the mindset behind outcome-oriented investing strategies. They focus on a specific goal, and are not limited to a single broad-market benchmark in targeting it. That means they can employ more tools in pursuit of their underlying objective—your underlying objective.

SEEKING OUTCOMES WITHOUT CONSTRAINTS

Because of their flexibility and benchmark-agnostic approach, outcome-oriented strategies are often called “unconstrained.” That affords some clear advantages in the current environment. To illustrate, consider today’s leading fixed income index, the Barclays U.S. Aggregate Bond Index (the Agg)—the likely target of an income-oriented investor. By construction, the index replicates the investment-grade debt sold in the U.S. market. Hence, it is heavily weighted (roughly 75%) toward U.S. Treasuries and other government-related securities.

The problem is that these are the very investments most affected by changes in interest rates. And after falling for some 30 years, the consensus outlook is for rates to rise. (And when rates rise, bond prices fall.) Bottom line: Investing in a portfolio based on the Agg not only presents a possible shortfall on the income front given today’s low government bond yields, but it also could lose value as rates rise.

Unconstrained income strategies, such as the BlackRock Strategic Income Opportunities Fund, seek to solve for this. They take a tactical approach to duration (a measure of interest rate sensitivity) and invest without limitation across the broad universe of income opportunities, says Rick Rieder, fund manager and Chief Investment Officer of Fundamental Fixed Income at BlackRock.

“With an unconstrained approach, the majority of the bond world, much of it off limits to the traditional core bond investor, becomes available,” Mr. Rieder explains.

TRENDING NOW

Investors seem to be taking a liking to outcome-oriented strategies, Mr. Porcelli observes. In fact, the management consulting firm McKinsey & Company suggested in a 2012 report that individual investors’ assets in such strategies would more than double in five years, to $2 trillion.

Mr. Porcelli is encouraged by this trend. “We’re focused on providing solutions that meet our clients’ needs, and outcome-oriented strategies that are directly aligned with investors’ objectives are just that,” he says. “Ultimately, as an investment manager and a fiduciary, our success is measured by our clients’ success—our goal is to get them to their goals.”

Shareholder Unconstrained Small

Help Us Make Shareholder Better For You

What did you think of this article? We want to know!

Comment on this Article


Shareholder was created with you in mind. Help us make it better!

Take the Survey

Stock and bond values fluctuate in price so the value of your investment can go down depending on market conditions.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets, in concentrations of single countries or smaller capital markets.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

Diversification and asset allocation may not protect against market risk or loss principal.

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained visiting the iShares ETF and BlackRock Mutual Fund prospectus pages. Read the prospectus carefully before investing.

Buying and selling shares of ETFs will result in brokerage commissions.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are those of the BlackRock investment professionals profiled as of May 2014, and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or make investment decisions that, in certain respects, may not be consistent with the information contained in this report. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

This material is provided for educational purposes and should not be considered investment advice. BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information obtained from these materials or from any other source mentioned. BlackRock is not engaged in rendering any legal, tax or accounting advice. Please consult with a qualified professional for this type of advice.

Shareholder, published by BlackRock, Inc., is designed to provide general information about investing. It is not intended to offer specific investment recommendations. Investing involves risk. You should contact your financial professional about your particular situation before making important investment decisions. Contact your financial professional about BlackRock products.

©2014 BlackRock, Inc. All rights reserved. BLACKROCK, SHAREHOLDER, iSHARES, BLACKROCK SOLUTIONS, and CoRI are registered and unregistered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.