According to Russell Brownback of BlackRock, investors looking for income have recently blocked the “noise” that shakes the market and have seen traditional fixed income for attractive yields. President Donald Trump’s concerns over tariffs have caused market volatility and wobble at 10 years of Treasury yields. But the economic foundation is still very solid, he said. “You have a structurally tough labor market. You have a pristine private sector balance sheet. You’re comparing your level of wealth completely and with income at record highs,” says Brownback, head of BlackRock’s global macropositioning team. The artificial intelligence revolution is causing infrastructure construction, which should continue throughout the remaining decade, and productivity gains are early innings, he said. “There will be noise about policy implementation, but I feel that it’s pretty good about the foundations of today’s economy, in a way that keeps the credit cycle pretty benign,” Brownback said. I prefer to look outside the Bloomberg US Total Bond Index, which tracks bonds. This is because the fixed income system has been changed. Brownback also noted that the Treasury faces risks due to policy and inflation uncertainty. “For us today, bonds are about income, not period,” Brownback said. “These strategies that allow us to move away from these traditional benchmark holdings are actually ways to optimize administrations.” Periods are measures of bond price sensitivity to interest rate fluctuations. Longer bonds tend to be more sensitive to sharp swings in rates. Brownback has been in BlackRock since 2009, but his working relationship with Rick Leader, the chief investment officer of global bonds, goes back even further. The pair worked together for 30 years. First I came to BlackRock with Lehman Brothers and then with R3 Capital Partners. In addition to working on the company’s multi-sector fixed income strategy, Brownback is the portfolio manager for the BlackRock Strategic Income Opportuniti Es Fund (BASIX). The fund has a 3-star and gold rating from Morning Star. It has a 30-day SEC yield of 4.47% and a net expense ratio of 0.99%. The fund’s institutional shares have a gold rating from four stars and Morning Star. Basix 1Y Mountain BlackRock Strategic Income Opportunities Fund (Equity) High-quality securitized assets are more than a quarter of the fund’s assets securitized products, and are Brownback’s favorite areas and are currently investing. Approximately 6.8% of the assets are mortgage-backed securities from ministries, while 6.1% is in commercial MBS. Another 5.7% is asset-backed securities, while 8.5% is a secured loan obligation. “There are so many idiosyncratic opportunities out there,” he said. Brownback takes a barbell approach when investing in securitized products. “Basically, very high quality, short-term, triple-A parts display screens on screens very cheaply compared to corporate credit across all these sub-set classes,” he said. On the underrated side, he is stuck with single borough positions in single assets within securities supported by commercial mortgages. “It’s really dependent on geography. It’s dependent on property,” he said. According to Brownback, high-yield bonds in the US, Europe and Asia also have selected opportunities. He noted that these corporate bonds are becoming increasingly high quality asset classes, especially in the United States. The Ice Bofa US High High Index consists of approximately 35% BB rated bonds and 20% at CCC about 15 years ago, and today it is over 50% of BB and only 10% CCC, he said. He is not assigned much to investment grade credits, but he has some holdings in European investment grades. He said the conversion of currency into US dollars is very attractive and the technology is very good. The fund also has around 22% on agency mortgages. They look historically cheaper compared to investment grade credits, but they suffer from some negative techniques, he said. Asset classes have negative convexities, he said, which is a measure of the relationship between bond prices and bond yields. “I don’t think interest rates are going too far in either direction, so I’ll make sure that negative convexity doesn’t come into effect,” Brownback said. “We actually think that something that is a much more liquid sector than the investment grade market has a bit of a good value, but of course it spins dynamically amongst opportunistic people.”
BlackRock says investors can earn attractive income with these assets
