Meanwhile, as the world continues to de-lever—and the supply of fixed-income opportunities shrinks—concentrated risks are created in the fixed-income arena. In other words, when not enough assets are created, investors “crowd” into existing offerings. Because of that, it’s incumbent upon us to routinely make relative value decisions, looking for consistent—and more durable—returns.
As mentioned above, one of the cornerstones of our investment process is “to make a little bit of money a lot of times.” The days of placing large, macro bets, or focusing narrowly on one sector, are over, because such an approach leads to much greater volatility in your portfolio. Instead, investing in tactical ways—identifying multiple sources of returns—has the potential to be more successful in such complex times.
We also believe investors need to be agnostic with respect to both asset class and geography. Looking for the best risk adjusted return ideas, regardless of those two concerns, is the process that informs the portfolio construction of the BlackRock Total Return Fund and Strategic Income Opportunities Fund, for example.
Ideas For A Changing Bond Market
A wide variety of bond strategies can and do make sense, and investors should consider how they work together to deliver the best results and meet goals. Traditional core bond strategies certainly play an important role in most portfolios, but a total-return strategy balances your bond positions, providing better diversification to stocks and helping you manage your fund’s sensitivity to interest rate changes. And remember, a good total return strategy also seeks returns from as many different sources as allowed by its benchmark.
Rick Rieder is managing director and chief investment officer of Fundamental Fixed Income and Bob Miller is managing director and head of the Multi-Sector & Rates Team within BlackRock’s Americas Fixed Income Group.