Total Return Fund Monthly Insight

Fixed income investing in a rising rate environment

Oct 22, 2018

How we’re positioned for today’s bond markets.

We expect long-term interest rates to continue moving marginally higher in the near term amid solid global growth, increased Treasury supply, and broadly less accommodative monetary policy from developed-market central banks. The resilience of recent U.S. economic data lends to an environment where the Fed can maintain its course in raising rates, and therefore, investors are likely to require more yield for longer-dated bonds.

We have continued to increase duration (sensitivity to interest rates) in the BlackRock Total Return Fund to 6.8 years as of the end of September. We maintain a yield curve-steepening bias with an overweight on the front end, where we see attractive yields with less sensitivity to rising 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 9/30/18. 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 blackrock.com/tr for current month-end performance.

The fund is flexible around its benchmark and adapts to changing markets. In September, we tactically added to exposure in investment grade credit as the new-issue market offered higher yields and lower-than-expected supply is providing a strong technical tailwind into year end.

We continue to favor attractive income-producers, including securitized assets and short-term securities. We believe securitized assets, including non-agency mortgages and collateralized loan obligations, should continue to experience strong demand in this overall low-yield environment.

The fund holds overweights in agency mortgages and municipals as these strong-performing, high-quality assets help to diversify risks relating to corporate bonds and longer-dated Treasuries.

View fund commentary