BlackRock’s Rick Rieder now sees opportunity | Wilnesh News
BlackRock’s Rick Rieder says there’s a lot to watch in fixed-income markets right now. The best part, he told CNBC, is that investors can still make some handsome gains without having to take any huge risks. “I wouldn’t take on a lot of interest rate risk. Buy a lot of quality income, compound it, and sleep at night,” said Reed, the firm’s chief investment officer for global fixed income. He also manages the BlackRock Flexible Income ETF (BINC), which just celebrated its first anniversary. Its 30-day SEC yield is 5.95% and its net expense ratio is 0.40%. One-year performance of the BINC 1Y mountain BlackRock Flexible Income ETF While investors can get higher yields if they want to take on more risk, Rieder cautions against this. The second half of the year is always more volatile, he said, and we’re heading into election season. “If you want 8(%), I think you’re greedy and arguably irresponsible in trying to get extra yield,” said Rieder, named Morningstar’s Outstanding Portfolio Manager in 2023. Rate hikes in 2022 . The central bank paused raising interest rates in 2023 and is now waiting for data to show inflation has subsided enough before cutting rates. Minutes from the latest Federal Reserve meeting showed officials were concerned about the lack of further progress in lowering inflation. Meanwhile, Federal Reserve Governor John Waller said on Tuesday he would need to see “a few months” of good data before voting to cut interest rates. Rieder believes a rate cut could come as early as September, depending on the data. As the Federal Reserve cuts interest rates, bond yields are expected to fall. “I really think the Fed wants to do a couple of rate cuts this year,” he said. “They’ll get a window to accomplish one or two tasks.” What Rieder sees as attractive One of Rieder’s current top picks is AAA mortgage bonds. These assets are securitized pools of floating-rate loans to businesses, generating interest for investors. He noted that interest rate spreads are still quite wide, with yields as high as over 6.5%. “Think about your ability to compound a return of 6.5% on triple-A assets,” Rieder said. “I’ve been doing this for over 30 years. This doesn’t happen.” The BlackRock AAA CLO ETF has a 30-day return of 6.75% and an expense ratio of 0.20%. One-Year Performance of the CLOA 1Y Mountain BlackRock AAA CLO ETF Among U.S. high-yield bonds, he likes single B-rated bonds. Investors can earn some income, but generally defaults are not a problem, Reed said. He would stay away from C-rated bonds because he thinks defaults in that area will rise. He finds European credit, whether investment-grade or BB-rated high-yield credit, attractive in part because of the strength of the U.S. dollar. “Then I’ll offer some high-quality investment-grade agency mortgages,” Reed said. “Don’t get out of the yield curve — for two to three years — and then keep your credit quality in a good place.” One-year performance of MBB 1Y mountain iShares MBS ETF BINC’s latest strategy Of course, he’s putting this strategy Applied to the BlackRock Flexible Income ETF, the ETF seeks to differentiate itself through a multi-sector approach that balances high quality and high yield. The fund was launched on May 19, 2023, and currently has assets in excess of $3 billion. In December, Morningstar named BINC one of the best new ETFs of 2023. The company’s average rating is BBB+, according to BlackRock. Rieder said the team has trimmed interest rate risk and the ETF’s current maturity is about 2.25 years, compared with its previous maturity of three years. They also added high-quality CLOs and high-quality European securitized assets. The fund allocates 31.6% of its portfolio to securitizations, with 11.3% in CLOs, 6.2% in asset-backed securities, 9.6% in commercial mortgage-backed securities and 4.4% in non-agency MBS. The fund has slightly reduced its exposure to high-yield companies to just under 40% from the 43% it held previously. About 21% of high-yield companies are from the United States, and 18% are from Europe and the United Kingdom. Meanwhile, BINC’s exposure to emerging markets remains modest. “We have added some recently, but we remain conservative on emerging markets,” he said. His strategy appears to be paying off. BINC has performed well, with a total return of 8.35% as of May 23 since inception. “We’re getting higher returns than BB high yield. We’re getting almost as much as full high yield, and our volatility is 60% of the market just because we’re diversified,” Rieder said. He said if investors maintain high quality, they will be able to ride out the volatility expected through the end of the year. “We are entering a period of greater liquidity,” he said. “Returns have been pretty good so far. Manage your volatility, keep your liquidity in a good position, and then, at the end of the year, deliver good returns.”
