BlackRock's chief investment officer for global fixed income, Rick Rieder, is strategically positioning a prominent exchange-traded fund (ETF) to capitalize on what he perceives as undervalued sectors within the bond market. The ETF, managed by Rieder, holds $7.69 billion in assets and offers a 30-day SEC yield of 5.57%. With a net expense ratio of 0.4%, this fund primarily focuses on debt with maturities ranging from zero to five years. Rieder has been actively incorporating longer-dated corporates into the fund, despite their small presence of approximately 12.6% within the portfolio.
Rieder's approach leans into high yield bonds and loans, which constitute nearly 41% of the fund. He identifies a "sweet spot" in two and three-year debt, favoring BB-rated high yield bonds in the former and B-rated bonds in the latter. The fund maintains a balance between European and British assets, which account for around 18%, and U.S. assets, comprising approximately 23%. Rieder emphasizes good quality assets in both Europe and the U.S., avoiding extensive long-term interest rate risks.
Investment-grade debt forms a modest part of the ETF at 12.6%, while securitized products represent just under 37%. Despite their limited allocation, Rieder believes investment-grade corporates are a valuable addition to the fund, noting that "investment-grade companies don't default." He sees longer-dated corporate bonds as particularly appealing, stating they offer solid yields and are "a good asset."
"The truth is, things like lodging, class A office that's fully leased up is attractive," stated Rick Rieder.
Rieder's strategy also involves recognizing the market dynamics where companies prefer issuing shorter bonds rather than incurring higher costs associated with longer-term ones. This preference creates opportunities for pensions and life insurance companies needing long bonds, thus influencing his investment decisions.
"Companies would rather issue shorter on the yield curve, as opposed to paying up. And pensions, life insurance companies need long bonds," Rieder explained.
Additionally, he points out that these longer-dated bonds often trade at a discount, presenting lucrative investment opportunities.
"They trade at 60, 70, 80 cents on the dollar," he remarked.
Rieder's expertise in identifying such undervalued sectors allows him to manage a balanced portfolio that caters to both immediate and future financial landscapes. By carefully selecting assets with optimal yields and minimal risk exposure, the fund aligns with BlackRock's strategic vision of sustaining growth amidst fluctuating market conditions.