Why BlackRock’s Rick Rieder says investors ‘underestimate’ active fixed income ETFs
Why BlackRock’s Rick Rieder says investors ‘underestimate’ active fixed income ETFs


BlackRock Chief Investment Officer of Fixed Income Rick Rieder mentioned investors underestimate actively managed fixed income exchange-traded funds. 

He advised CNBC’s “ETF Edge” this week that one among his agency’s latest fixed income funds, the BlackRock Flexible Income ETF (BINC), has outperformed friends as a result of its allocations are primarily based on present market alternative.

“The fantastic thing about this active ETF is we will transfer round and make the most of the place the chance is,” mentioned Rieder, who manages roughly $2.6 trillion in fixed income property. “I feel active ETFs in fixed income, individuals underestimate.”

BINC has gained 0.28% since its May 23 debut, as of Friday’s shut. The benchmark iShares Core US Aggregate Bond ETF (AGG) fell 3.89%, and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) misplaced 0.16% throughout the identical interval.

The fund’s largest allocation at present is in non-U.S. credit score, which accounts for roughly 22% of the ETF, according to BlackRock’s website. U.S. excessive yield credit score follows at practically 17%, then U.S. funding grade credit score at roughly 14% of whole allocations. About 30% of the fund’s holdings originate outdoors the U.S.

According to Rieder, BINC has benefited resulting from alternatives abroad created by a stronger greenback.

“It’s the flip aspect of a European or Japanese investor. You cannot purchase U.S. property as a result of the associated fee to hedge your foreign money is so costly, however as a greenback investor, it’s a windfall,” he mentioned. 

The fund has capitalized on rising market fixed income alternatives in Brazil and Mexico, however Rieder added that Europe contains a “a lot greater” portion of the fund’s allocation given attractive foreign money swap charges.

“What we do is we swap again issues like European funding grade credit score to {dollars}. You get 6.5% for two-year [notes], good high quality funding grade corporations,” he mentioned.

Rieder additionally underscored the benefit of active administration not solely find alternative, however in avoiding pockets of weak spot.

“The secret about fixed income is in case you can construct extra yield in your portfolio than the index and kick out the stuff you do not wish to personal, you possibly can create 50 to 75 foundation factors a 12 months. … Get extra yield within the index and handle your volatility aggressively.”

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