Total Return Fund Monthly Insight

Diversifying across bond sectors
to generate returns

Dec 17, 2018

How the BlackRock Total Return Fund is
positioned for today’s bond markets.

Recent economic data confirms that the labor market is slowing, inflation remains moderate, and financial conditions have tightened. As a result, the Federal Reserve may be nearing its neutral policy rate. We believe the Fed should embrace the resilient economy and jobs market, and focus on avoiding excessive tightening of financial conditions that could abruptly curtail an expansion that has persisted longer than in prior cycles. With this in mind, we may see the Fed slow from their previously conveyed rate-hiking path for next year.

In the BlackRock Total Return Fund, we slightly reduced duration (sensitivity to interest rates) in November to 6.3 years as interest rates moved modestly lower amid elevated trade tensions and broader geopolitical risk. The majority of the fund’s duration is held in the 0- to 5-year part of the yield curve, although we rotated some exposure into longer-dated Treasuries to hedge riskier allocations within credit and emerging markets.

The fund's diversified sources of return across fixed income asset classes

Chart: The fund's diversified sources of return across fixed income asset classes

Source: BlackRock as of 11/30/18. Quarterly return attribution is based on gross returns of the fund’s Institutional share class. U.S. Relative Value: The fund’s U.S. relative value strategies reflect the portfolio management team’s specific views on the mortgage market. Macro: The macro strategy is how the portfolio management team implements thematic and macro-economic investment views through duration, yield curve and foreign-currency positioning. Residual: This non-attributable portion of the fund’s total return is derived from trading and allocation effects across the fund’s investment strategies. For standardized performance, click here

Performance data quoted represents past performance and is no guarantee of future results. Investment returns and principal values may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than that shown. All returns assume reinvestment of all dividend and capital gain distributions. Refer to for current month-end performance.

The fund’s duration positioning was the main contributor to performance in November, while U.S. and foreign credit exposure hindered results. Securitized assets have been remarkably resilient despite broader market volatility this year. We continue to take profits on these positions as strong performance has resulted in diminished incremental compensation in these sectors versus Treasuries. Instead, we are increasing allocations to high-quality, liquid, yield-generating sectors such as agency mortgages.

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