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PORTFOLIO PIONEERS

Keeping investors at the forefront of portfolio construction.

Progressing portfolio construction together.

Capital at Risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy.

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A new investment order for fixed income

3-min Video: A new investment order on Fixed Income, Rich Kuschel, Head of BlackRock Portfolio Management Group

We have entered a new investment order.

The Covid-19 pandemic has accelerated profound shifts in how economies and societies operate, and we see fixed income as the most-affected asset class. We advocate for significant and immediate changes to this core allocation in multi-asset portfolios so it can thrive in the post-pandemic world. The overall portfolio exposure to fixed income may be similar to the past, but its composition needs a transformation –both in exposures and implementation choices. In this whitepaper*, we detail four guiding principles for implementing our portfolio construction framework to enable this sea change.

Download the paper

*This paper was published in February 2021. Since we wrote it, there have been material market movements in fixed income, and some of the market calls referenced have already at least partially transpired over the last few months. The speed of the market changes witnessed reinforce our fundamental messages in this paper; the need to think carefully and differently about fixed income’s role in strategic asset allocation now, and the need to build robust portfolios. 

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Change is in the air

The European bond market is rapidly modernising, with new technologies and increasing “electronification” of the market. Fixed income ETFs are working as an enabling vehicle in modernising European bond markets and becoming the tool of choice for fixed income investors.

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Is Sustainability at the core of your Fixed Income allocation?

During the volatile period in March and April last year, ESG screened bond portfolios were more resilient and less volatile as issuers with higher ESG scores were less impacted.

A euro aggregate corporate universe that excludes lower-rated ESG names outperformed its non-ESG counterpart by about 30 basis points. See chart below. Once we strip out secondary effects of screening –such as sector and duration mismatch between the universes –over two-thirds of the outperformance was due to ESG return drivers. All this evidence unequivocally points to a key conclusion: resilient portfolios will need to embed sustainability at the core of all asset allocation and implementation choices.

ESG Outperformance during market stress

Difference in euro investment grade and euro ESG investment grade total return, 2020

Chart showing ESG outperformance.

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results.

Source: BlackRock Fundamental Fixed Income, Bloomberg Barclays and MSCI, with data from Bloomberg, 24 November 2020.

Notes: The chart shows the difference in total return of the Bloomberg Barclays MSCI Euro Corporate Sustainability Index and the Bloomberg Barclays Euro Corporate Index. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.

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Case study: how to integrate ESG into fixed income allocation
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Q2 2021 EMEA Implementation guide

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Portfolio analysis
Through our consultancy services, we have partnered with over 750 investors*, to deliver innovative solutions and insights, to help solve their portfolio challenges. Discover some of the ways that we could support you in making better informed investment decisions.
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*BlackRock Portfolio Analysis and Solutions, from January 2018 – Dec 2020.