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Total Return Fund Monthly Insight

The pressure on rates

Aug 20, 2019

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

July delivered another solid month of strong performance in financial markets broadly. As expected, the Federal Reserve cut interest rates by 25 basis points (0.25%) for the first time since the financial crisis and announced that it would stop shrinking the balance sheet in August, which is earlier than previously indicated. From this point forward, we believe the Fed’s decisions will be dependent on domestic and global economic conditions, and more accommodations are likely. In an environment with rising uncertainties in the market and trade disputes looming over global economies, careful portfolio construction is particularly important for fixed income investors.

In the BlackRock Total Return Fund, we slightly reduced duration (interest rate risk) in July, ending the month at 5.8 years, which is marginally higher than the Bloomberg Barclays U.S. Aggregate Bond Index. It is our view that the increasingly accommodative monetary policy from the Fed and synchronized slower global growth, along with continued trade-related uncertainties, should continue to put downward pressure on U.S. interest rates.

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 7/31/19. 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 blackrock.com/tr for current month-end performance.

The fund generated a positive return for the month of July, derived from a variety of sources. The leading contributors to outperformance relative to the Bloomberg Barclays U.S. Aggregate Bond Index were the fund’s overweight positions in U.S. duration and investment grade credit. A small equity hedge position and an overweight in agency mortgages detracted from relative returns.

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Bob Miller
Head of U.S. Multi-Sector Fixed Income
Bob Miller, Managing Director, is head of the U.S. Multi-Sector Fixed Income team within BlackRock's Global Fixed Income group and a member of the Global Fixed Income ...
Rick Rieder
Chief Investment Officer and Co-Head of Global Fixed Income
Rick Rieder, Managing Director, is BlackRock's Global Chief Investment Officer of Fixed Income, and Co-head of BlackRock's Global Fixed Income platform, a member of ...
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