Total Return Fund Monthly Insight

Reeling in the opportunities amid
range-bound rates

Apr 22, 2019

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

The upbeat tone of financial markets continued in March, with many asset classes generating positive performance amid low volatility. A steady rally in government bonds accelerated into a marked repricing after the Fed signalled its willingness to let the economy stretch a bit, and European manufacturing activity again triggered growth fears. In this environment, we think interest rates are likely to remain range-bound for the near-term, which means investors can once again use duration as a hedge to build more durable portfolios.

The BlackRock Total Return Fund holds a slight overweight in duration (sensitivity to interest rate movements) relative to the benchmark, at 5.9 years as of the end of March. We rotated some exposure into the 3- to 5-year part of the yield curve given an attractive risk-reward profile.

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 3/31/19. 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 strong performance in March was attributable largely to its overweight exposures to investment grade credit, municipals and securitized assets. Given the positive market environment, there were no material detractors from performance during the month.  

As interest rates declined in March, we shifted to an underweight in agency mortgages given the increased potential for a pickup in prepayment speed. We also took profits in municipals and collateralized loan obligations on the back of strong performance in those sectors.

Conversely, we added to non-U.S. sovereign bonds as we continue to see weaker economic activity data outside the United States. We tactically added to emerging market exposures, particularly in local sovereign debt, as we believe the U.S. dollar may have peaked, and a supportive policy backdrop across local central banks should create opportunities despite continued geopolitical uncertainties.

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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 ...