Rick Reeder, BlackRock’s global fixed income chief investment officer, said on Friday that this year’s bond market volatility has created an opportunity to buy high-quality yield at a discount. As a result, his new fund outperformed some of the largest bond ETFs during the recent selloff. Leader’s BlackRock Flexible Income ETF (BINC) has seen its total return decline less than 1% over the past month, even as interest rates have soared. That compares with a 2.5% decline in the iShares Core US Aggregate Bond ETF (AGG) and a 2.2% decline in the Vanguard Total Bond Market ETF (BND), two of the largest bond ETFs. BINC 1M Mountain BlackRock’s BINC has held up better than the major bond ETFs over the past month. Rieder said the fund’s focus on short-term bonds allows it to avoid some of the volatility caused by recent interest rate movements, which have been more dramatic at the long end of the yield curve. “We have a fixed income environment where we can generate a lot of yield, and we don’t have to go out and get yield in the traditional way, and we don’t have to go out and extend duration.”Yield curve,” Reeder told CNBC. The life of this fund is less than his 3 years, and the majority of the holdings will mature within his 7 years. “What people underestimate is that the long-term bond in the bond market, the 30-year Treasury, has about the same volatility as the stock market,” he said. Beyond cash, the fund’s top individual holdings include mortgage-backed securities, the iShares iBoxx Investment Grade Corporate Debt Fund (LQD), and Mexican and Brazilian government bonds, according to BlackRock’s website. Mr. Reeder said he is seeing a shift in the mortgage market that allows funds to add higher-quality assets at a discount. “Typically, the buyers of mortgages are the banks, the Federal Reserve, and Japan. And today, none of those three are buyers, and at least two of those three are sellers…that is, government agencies. It’s making mortgages cheaper, and that’s the financial institution’s mortgage buyers. It’s a very liquid AAA asset,” Reeder said. Although index funds exist that track different segments of the market, mortgage-backed securities and many other fixed income securities can be difficult for investors to access individually. iShares (MBB) and Vanguard (VMBS) ETFs tracking mortgage-backed securities have each fallen more than 5% this year. Nearly 40% of his BINC exposure is to assets outside the United States. Rieder said a strong dollar could make shopping overseas more attractive for U.S.-based funds. “If you’re an international investor, the hedging costs are very high to buy dollar assets. But if you’re a dollar investor, you can buy things like European investment grade credit and actually get currency benefits. ” Reeder said. BINC, founded in May, manages more than $150 million in assets. The 30-day SEC yield is 5.75%, the average yield to maturity is 7.31%, and the net expense ratio is 0.40%. The fund pays monthly distributions and has generated a total return of 1% since its debut.
