In a challenging bond market with yields today near historic lows and rates poised to rise, investors should consider flexible and non-traditional approaches.

Why you need to act:

  • Traditional bond funds have a high degree of interest rate risk sensitivity and with rates at current levels, may have limited upside growth potential.
  • It is likely short-term interest rates will be anchored at zero, while longer-term interest rates may move higher.
  • We believe staying in low-risk, low-return asset classes like cash is likely to provide negative real returns.

Allocate to Flexible Bond Portfolios

Flexible bond portfolios are not tethered to benchmarks, and can adapt to changing conditions by seeking to manage interest rate and credit risk.

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Seek Returns Beyond Traditional U.S. Bonds

Investing beyond the U.S. bond market can help diversify the sources of your returns and contribute to the overall growth of your portfolio.

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Keep Durations Short, But Know What You Own

Move cash off the sidelines to seek incremental yield and help minimize interest rate risk, but be aware of the different levels and kinds of risk some funds may take.

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*Morningstar Direct. As of 6/30/14. Traditional Bond Funds are represented by the Morningstar Intermediate-Term Bond category. Based on all share classes and 968 funds out of 1105 posting negative returns in 2013.

Traditional core bonds represented by the Barclays U.S. Aggregate Bond Index.

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.

Investing involves risk, including possible loss of principal.

The BlackRock funds are actively managed and their characteristics will vary.

The iShares Short Maturity Bond ETF is actively managed and does not seek to replicate the performance of a specified index. The Fund may have a higher portfolio turnover than funds that seek to replicate the performance of an index.

Active funds typically charge higher fees than index-linked products due to increased trading and research expenses that may be incurred.

Bond values fluctuate in price so the value of your investment can go down depending on market conditions. The two main risks related to fixed income investing are interest-rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments.

Securities with floating or variable interest rates may decline in value if their coupon rates do not keep pace with comparable market interest rates. The Fund’s income may decline when interest rates fall because most of the debt instruments held by the Fund will have floating or variable rates.

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.

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

Investing in long/short strategies presents the opportunity for significant losses, including the loss of your total investment. Such strategies have the potential for heightened volatility and in general, are not suitable for all investors.

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