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CNBC
30-06-2025
- Business
- CNBC
BlackRock's Rick Rieder says there is a 'generational opportunity' for income right now
The high levels of income in the bond market right now are a "generational opportunity" for investors, according to BlackRock's Rick Rieder. "I've waited for two decades of my life for some deals," he said in an interview with CNBC, pointing to the years of low interest rates that ended in 2022. Bond yields move inversely to prices. That income is a priority now that bond duration is still no longer the reliable hedge it once was, explained Rieder, the firm's chief investment officer of global fixed income. In other words, fixed income hasn't necessarily offered a ballast against a drop in stock prices. "In a sense, the ability to deliver consistently high coupons to global portfolios can serve as something of a bulwark against equity market drawdowns, especially at a time when duration itself has failed to serve its traditional function," he wrote in the firm's mid-year outlook released Monday. Getting that income doesn't necessarily mean taking excess risk since companies have de-levered, paying down their debt during the post-Covid period, he added. However, the opportunity isn't going to last forever, Rieder told CNBC. He said he anticipates a boost in productivity and innovation from the "greatest technology revolution" that is now underway. That will bring down inflation and, eventually, interest rates, he added. Still, some labor softness could hit the economy in the near term, Rieder noted. Yet, he expects a pretty good second half of the year from a growth perspective — although more toward the last quarter. "A lot of corporate CEOs are sitting and waiting to see what would happen with regard to tariffs, and I think you unlock some of the spend in the capex [capital expenditures] and [research and development]," he said. President Donald Trump 's pause on reciprocal tariffs ends on July 8 and the deadline for a deal between the United States and Europe is on July 9. However, the president recently said he may not adhere to the deadlines, saying, " We can do whatever we want ." Where the opportunities lie The front and the belly of the curve remain the most attractive, said Rieder, who is also the portfolio manager of iShares Flexible Income Active ETF (BINC) . The exchange-traded fund has a 30-day SEC yield of 5.45% and a 0.40% net expense ratio. BINC YTD mountain iShares Flexible Income Active ETF year to date Rieder still favors European credit and peripheral sovereign bonds, like Spain and Italy. The yields are terrific and there isn't much concern about supply, he said. "If you're a dollar investor — and this is something that we also haven't seen in decades — we get a cross-currency swap benefit," Rieder said. "Everybody's trying to hedge their U.S. dollar exposure. Being a dollar investor you actually get the benefit and it's tremendous," he added. "We get an extra 2%, 2.5% benefit for being a lender in Europe and that makes all the difference in the world for a dollar investor." He also likes securitized products in the United States. They make up 35% of BINC's assets, with commercial mortgage-backed securities and non-agency MBS accounting for some of that allocation. Rieder has reduced BINC's allocation to investment-grade bonds, which now make up 7% of the ETF. Instead, he said he'd rather get the income from high-yield bonds or agency MBS, the latter of which has attractive income and is much more liquid than corporate bonds. Biggest risk in the market The biggest risk facing fixed-income investors right now is the rising federal deficit, Rieder said. Concerns about it have fueled volatility in the market, he said The U.S. budget deficit hit $316 billion for the month of May, according to the Treasury Department. "There is the risk we still have to keep doing these [Treasury] auctions," he said. "Long-end interest rates are extremely volatile and sensitive to inflation." While Rieder thinks inflation is coming down, he isn't sure that will happen in the next few months. "Longer term, I think we'll be able to outrun the debt," he said. Near term, "markets tend to sense vulnerability." "I watch every 10-year, 20- or 30-year auction," he added. "In the bond market, to me, it's almost a sigh of relief when they get them done."
CNBC
30-04-2025
- Business
- CNBC
BlackRock says investors can profit from diversifying beyond the 60/40 amid volatility
The recent market turbulence has highlighted the importance of having a diversified portfolio, according to BlackRock. For many investors, that means looking beyond a traditional portfolio of 60% stocks and 40% fixed income, the firm said in a recent report. "Crucially, we believe investors can benefit from a more deliberate diversification strategy, where traditional asset classes may not meet the moment," the team wrote. Equities fell on Wednesday after data showed the United States economy contracted in the first quarter, raising concerns about a possible recession. Treasury yields were flat. Yields move inversely to prices. The moves were just the latest in the market's ups and downs as investors consider President Donald Trump's trade policy and ensuing tariff negotiations. Expanding beyond a basic 60/40 makes sense because stocks and bonds haven't had the negative correlation they once enjoyed — where bonds would provide a ballast if stocks tanked, said Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock. Not only that, there has been an increasingly positive correlation, she said. For instance, earlier this month stocks sank and bond yields rose, particularly on the longer end of the curve, Chaudhuri pointed out. That's led to a lot of clients asking, "what else?" she said. "[When] rethinking your 60/40, I think the starting place is important," Chaudhuri said. "What type of portfolio you're trying to build of that 60 — what part is in U.S. versus international," she added. "Of the 40, what part is in something traditional like an [ iShares Core US Aggregate Bond ETF ] AGG versus more shorter-duration, income-seeking solutions." Diversifying your portfolio There are several ways to diversify your portfolio to help hedge against volatility, Chaudhuri said. First, when looking at the fixed income portion, investors should concentrate on maturities in the 3- to 7-year range, she said. That allows them to focus on "the income of fixed income," she added. For instance, the iShares Flexible Income Active ETF has an effective duration of around 3 years. BINC YTD mountain iShares Flexible Income Active ETF In addition, a small exposure to inflation-linked bonds in the front end of the curve could also help protect against inflation, Chaudhuri said. Within equities, investors should make sure they also have international allocations in addition to U.S. stocks, she said. The percentage depends on the investor, she noted, but said most advisors are underweight international. Then, investors can consider adding sleeves of diversifiers in their portfolios, like gold, which has had a tremendous run of late. "Maybe it won't continue to go up at a straight line like it has, but certainly considering the diversifying properties, especially in a slowing growth, a rising inflationary world where you might want to reconsider the role of gold in a portfolio," she said. Then there are what Chaudhuri calls liquid alternatives that are market-neutral strategies that have a lower correlation to the S & P 500 . "When equity markets are going down, they will not follow that same path. So looking at strong alpha generators that have a very low beta to the equity as well as the bond markets," she said. These solutions can "significantly improve your portfolio outcomes by enhancing your performance … especially in a market down, but certainly in a market up scenario as well by utilizing different futures — basically long, short strategies across several sectors of the market, several parts of the capital stack in fixed income," she added. BlackRock has three of these strategies that it said delivered better annualized returns and lower annualized risk compared to the benchmark aggregate bond index in the past three years. The BlackRock Global Equity Market Neutral Fund (BDMAX) focuses on diversification through equity long and shorts in an effort to deliver attractive returns that have a lower correlation to broad asset classes. The BlackRock Tactical Opportunities Fund (PCBAX) also seeks a lower correlation between stocks and bonds with a mix of equities, sovereign bonds and currencies. Lastly, the BlackRock Systematic Multi-Strategy Fund (BAMBX) focuses on total return that includes income and capital appreciation. BAMBX YTD mountain BlackRock Systematic Multi-Strategy Fund The funds don't come cheap. The more accessible A-shares for the BlackRock Global Equity Market Neutral Fund have a 1.6% net expense ratio, while the BlackRock Tactical Opportunities Fund has a 1.09% and BlackRock Systematic Multi-Strategy Fund as a 1.2% net expense ratio. Still, diversifying beyond the 60/40 may not be for everyone, Chaudhuri said. "You could be an investor that's just starting your investing journey … and you want a simple liquid, one ticker solution," she said. In that case, something like the iShares Core 60/40 Balanced Allocation ETF (AOR) could work, she said. "They don't want to be thinking about rebalancing," she said. "It has your 60 and 40, and it's balanced." AOR .SPX YTD line iShares Core 60/40 Balanced Allocation ETF vs. S & P 500
