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Look for yield, but don’t overreach

KEY TAKEAWAYS

Good yield is still hard to find. Maintain flexibility and a firm focus on risk management. Multi-asset strategies may help.

Investors know that good income is hard to find. Even more difficult: Finding decent income without indecent risk. This is unlikely to change.

TWICE THE SAVINGS REQUIRED TODAY
Savings in Core Bonds Needed to Produce Median Household Income

Graph: Twice the savings required today
Sources: Morningstar, Bloomberg and Census Bureau, as of 12/31/2015. Household income represented by median U.S. household in 2014 in nominal terms. Past performance and income does not guarantee future results. Core bonds represented by the Barclays U.S. Aggregate Index yield to worst. You cannot directly invest in an index.

We see a number of factors keeping a lid on market yields for some time. For example, older individuals tend to borrow less and exhibit a preference for fixed income. The retirement of the baby boomers, now upon us in earnest, serves to lower the supply and increase the demand for longer-term bonds, thereby propping up prices and continuing to hold yields down.

BUT LOW-RISK YIELD IS HARD TO FIND

Graph: But low-risk yield is hard to find
Source: BlackRock, Bloomberg, as of April 2016. Notes: All performance data and index yields are from 11/28/11–3/31/16. Represented indexes are listed on back page. Index yields are shown for illustrative purposes only and do not predict or depict the yield of any BlackRock fund. Yields for the indices have material differences including investment objectives, liquidity, safety, guarantees of insurance, fluctuation of principal or return and tax features. Fixed income yields are yield-to-worst, equity yields are current dividend yield and MLPs’ yield consists primarily of return of capital which reduces the investor’s adjusted cost basis. The maximum drawdawn is the largest historical decline in net asset value from peak.

As traditional bond yields stay low, other income sources also face hurdles. Stocks with relatively “safe” dividends, such as utilities, have been heavily bought in the investor search for income and now don lofty price tags. We expect default rates for high yield bonds to rise, suggesting investors exercise caution when chasing yield in the riskiest corners of the bond market. A prudent strategy is to maintain flexibility and a firm focus on managing risk.

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 by visiting blackrock.com/latamiberia. Read the prospectus carefully before investing.

REPRESENTED INDEXES 
Treasuries represented by the Barclays U.S. 7–10 Year Treasury Bond Index, including U.S. Treasury securities with a maturity of 7-10 years. Core bonds represented by the Barclays U.S. Aggregate Index, comprising more than 5,000 investment-grade taxable bonds. Inv. grade debt represented by the Barclays Investment Grade Index, consisting of publicly issued, fixed rate, non-convertible investment grade debt securities. High yield debt represented by the Barclays HY 2% Issuer Capped Index, comprising issues that have at least $150 million par value outstanding, a maximum credit rating of Ba1 or BB+ (including defaulted issues) and at least 1 year to maturity. Each issuer is limited to 2% of the index. Bank loans represented by the S&P Leveraged Loan Index, designed to reflect the largest facilities in the leveraged loan market. It mirrors the market-weighted performance of the largest institutional leveraged loans based upon market weightings, spreads, and interest payments. U.S. equity represented by the S&P 500 Index, covering 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE issues). Global equity represented by the MSCI World Index, consisting of a market value weighted average of the performance of about 1,350 securities on the stock exchange of selected countries. Dividend-paying stocks represented by the MSCI USA High Dividend Yield Index, reflecting the performance of the high dividend yield of large- and mid-cap stocks in the U.S. Preferred stock represented by the S&P U.S. Preferred Stock Index, measuring the performance of preferred stocks listed in the U.S. with a market capitalization over $100 million. U.S. REITs represented by the FTSE NAREIT Equity REIT Index, measuring the stock performance of companies engaged in the ownership and development of the real estate markets. MLPs represented by the Alerian MLP Index, a market-cap weighted, float-adjusted index composite of the 50 most prominent energy Master Limited Partnerships (MLPs). MLPs' yield consists primarily of return of capital which reduces the investors adjusted cost basis. EM debtrepresented by Barclays Emerging Market Debt Index, an unmanaged index that tracks total returns for external-currency-denominated debt instruments of the emerging markets.

In Latin America and Iberia, for institutional investors and financial intermediaries only (not for public distribution). This material is for educational purposes only and does not constitute investment advice or an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security and it is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of your relevant jurisdiction. If any funds are mentioned or inferred in this material, such funds have not been registered with the securities regulators of Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain Uruguay or any other securities regulator in any Latin American or Iberian country and thus, may not be publicly offered in any such countries. The securities regulators of any country within Latin America or Iberia have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America or Iberia. The contents of this material are strictly confidential and must not be passed to any third party.

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