Total Return Fund Monthly Insight

Bonds as a ballast

Feb 22, 2019

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

Financial markets rebounded in January as the Fed embraced a philosophy of “patience” and “flexibility,” indicating a pause on further rate hikes to observe the lagged effects of prior tightening on growth, inflation, and the interest rate-sensitive sectors of the economy. Based on this shift, we expect the U.S. dollar to ease in strength, while risk assets can benefit from interest rates remaining relatively stable. In this environment, we believe investors can use duration as a hedge and seek return targets with less risk than one year ago.

In the BlackRock Total Return Fund, we increased duration (sensitivity to interest rates) to 6.4 years in January. While the fund remains overweight in the 0- to 2-year part of the yield curve, we now favor longer-dated bonds as we believe they look reasonably priced and offer reliable hedging benefits. It’s our view that the synchronized global slowdown and a near-neutral policy rate should keep U.S. interest rates range-bound in the near-term.

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 1/31/19. 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’s longer duration and greater exposure to U.S. investment grade credit contributed positively to performance relative to the Bloomberg Barclays U.S. Aggregate Bond Index in January, while the fund’s macro view strategies detracted. We continue to prefer high-quality, liquid sectors including investment grade credit, municipals and securitized assets. Although we further reduced exposure to agency mortgages on the back of strong performance, we continue to maintain an overweight in the sector relative to the benchmark index.

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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 ...
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 ...