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Total Return Fund Monthly Insight

Investing in a rate-riled market

October 21, 2019

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

The sharp rise in U.S. rates in the first half of September offset the strong bond market rallies of August and late September. A perceived easing of U.S.-China tensions and an attack on Saudi Arabia’s oil infrastructure reinforced the impact of geopolitical headlines as key market drivers.

The Fed, as widely expected, cut interest rates in September, referencing global developments and muted inflation pressures against a backdrop of an economy that was generally in decent shape. The European Central Bank also delivered a more accommodative package, restarting its asset purchase program at €20 billion per month until its mandated inflation target is routinely met.

Though U.S. economic data was mostly positive in September, recession fears re-escalated as manufacturing and services indices surprised to the downside. In this environment with many uncertainties, careful portfolio construction is particularly important for fixed income investors.

In the BlackRock Total Return Fund, we slightly increased the fund’s duration (interest rate risk) in September, ending the month at 6.3 years, which is higher than the Bloomberg Barclays U.S. Aggregate Bond Index. We expect the Fed’s accommodative monetary policy along with the synchronized slowdown in global growth and ongoing trade uncertainties to keep putting downward pressure on U.S. interest rates; as a result, we continue to favor duration as a means of hedging the fund’s exposure to spread assets.

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 9/30/19. 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 for current month-end performance.

Amid high interest rate volatility, overweights in U.S. duration and agency mortgages had a negative impact on the fund’s performance, while exposure to securitized assets and an overweight in U.S. investment grade credit helped results.

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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 ...