Unconstrained (SIO)
• No benchmark, maturity or geographic constraints with duration flexibility
• Risk-aware process
Overview
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Unconstrained fixed income strategies have the potential to navigate nimbly across sectors to optimize for attractive yield and returns, while managing for downside risk. BlackRock Strategic Income Opportunities Fund (SIO) uses an unconstrained approach to seek consistent, attractive risk-adjusted returns across all market environments.
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SIO is not tied to a benchmark and has no constraints regarding maturity, sector or geography. Thus, unlike traditional bond strategies, SIO has the flexibility to actively manage duration and access a broad fixed income opportunity set.
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The fund seeks attractive opportunities typically not found in traditional core bond funds, while retaining the general risk profile of traditional fixed income through diversification. SIO avoids taking concentrated positions, and can proactively run a more defensive or opportunistic profile, built to navigate changing market environments.
Our investment process
Portfolio construction
Unconstrained strategies are not tied to a specific benchmark. Instead, portfolio managers seek to build a portfolio of diversified exposures, dynamically adjusting positioning to help enhance returns and mitigate risk in constantly changing market environments. The flexibility allows the team to efficiently budget risk to the most robust risk-adjusted return sources. Portfolio construction involves implementing a top-down view that drives geographic and sector allocations as well as duration positioning. Sector specialists, in turn, draw on their knowledge and relationships to implement security selection decisions. The team can also implement macro hedges as well as relative value expressions to mitigate risks, provide uncorrelated sources of return, increase diversification, and smooth volatility.
Research
Unconstrained fixed income strategies, such as those utilized by SIO, allow for investment across the full spectrum of sector, quality, maturity and geography while also having wide duration flexibility. Instead of seeking to outperform an index, a flexible strategy pursues a more ambitious goal: consistent, attractive risk-adjusted returns across market environments over a market cycle. It takes significant resources to analyze the widest range of fixed income exposures on a risk-factor level, aggregate and manage them across the portfolio. With the requisite tools, people, and capabilities across the globe, it’s possible to navigate this much larger opportunity set to derive significant return and diversification benefits. BlackRock’s unconstrained approach combines top-down analysis coupled with bottom-up research and security selection. The team identifies the investment regime and macroeconomic environment to inform the risk budget and duration positioning. These views relate to a range of factors, including inflation, monetary policy and financial conditions. Sector specialists across the globe conduct bottom-up research to inform security selection decisions. This includes analysis on a range of factors such as industry attractiveness, issuer competitiveness and other financial factors. Research analysts and sector specialists work together to assess the relative value of each potential investment.
Risk management
Risk management is central to the portfolio management process at BlackRock and SIO is run through a disciplined and rigorous risk framework. A range of standard risk measures are monitored daily by Portfolio Managers and the Risk and Quantitative Analysis Group (“RQA”) using BlackRock’s proprietary technology. RQA provides independent oversight, running a daily Risk Dashboard customized for the strategy. The dashboard provides a highly-detailed view of the strategy’s risk exposures with data on each position’s carry (or yield from coupon and other sources), liquidity and P&L contribution, among other attributes. Members of RQA meet with the portfolio management team daily to review risk positioning. A key contribution of the risk team—and a prominent feature on the dashboard—are the results of stress tests run daily to generate insights into what various market or macro developments might mean for different sectors and for the portfolio as a whole. RQA also helps to identify investment, counterparty, operational, regulatory and technology risks.