Why it’s time to rethink fixed income

Mar 1, 2016
By BlackRock

For decades, defined contribution participants have come to expect two things from bond funds pegged to the Barclays Aggregate Index: safety and strong returns. Unfortunately, the main driver of those strong returns—declining interest rates—is likely at an end. The question facing plan sponsors is what to do about it.

It is critical to recognize that interest rates are not the only headwind facing fixed income and that this is an opportunity for plan sponsors to consider more robust, flexible fixed income options. With that in mind, in this paper we recommend three steps:

  1. Define your plan’s fixed income objective, giving weight to participant expectations for return and safety.

  2. Rethink your fixed income benchmark to find a more appropriate balance between interest rate and credit risk.

  3. Explore a multi-strategy white label approach that may allow more flexibility in responding to the evolving fixed income environment.


By carefully considering these steps, plan sponsors may move beyond simply responding to short-term rate concerns by building fixed income menu options designed for a next generation of bond fund needs. For the full explanation, read on.