Total Return Fund Monthly Insight

Diversification at the core

May 21, 2019

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

April saw a continuation of the broad rally in risk assets that has dominated markets since the beginning of this year. The Fed has re-iterated its willingness to maintain a patient stance, with the overarching goal of sustaining the economic expansion. Meanwhile, inflation data has continued to signal a trend of moderate, but not accelerating, growth. In consideration of these dynamics, it is our view that interest rates are likely to remain range-bound in the near term. In this environment, investors can use duration as a durable portfolio hedge, which is especially pertinent should global trade tensions worsen.

We have positioned the BlackRock Total Return Fund with an overweight in duration (sensitivity to interest rate movements) relative to the benchmark, at 6.3 years as of the end of April. We added to shorter-dated bonds and intermediate terms for both income generation and hedging purposes.

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 outperformance in April was attributable largely to an overweight in U.S. investment grade credit and out-of-benchmark allocations to securitized assets. Small exposures within emerging markets detracted slightly.

We hold a cautious stance on agency mortgage-backed securities; however, as valuations improved in April, we increased exposure and closed the fund’s underweight relative to the benchmark. We tactically reduced positions in U.S. investment grade credit on the back of strong performance.

In emerging markets, we maintained the fund’s small, carefully selected positions of local sovereign debt in Brazil, Indonesia and Mexico. 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 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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