BlackRock Urges Investors to Consider Updated Bond Strategies for Stronger Portfolio Performance

Picking the right bonds for your investments is like choosing the best team players for a big game—you want a group that works well together and can handle surprises. Today, there’s a new option on the field, and it might help investors build a stronger defense.

What’s New for Bond Investors?

BlackRock, one of the world’s biggest money managers, has just launched a new fund called the iShares Total USD Fixed Income Market ETF (BTOT). This fund is designed to give investors more choices than just the usual core bond funds. Instead of sticking to the basics, BTOT includes a wider mix of bonds, like bank loans and inflation-protected securities, to help weather changing interest rates.

Most traditional bond funds, like the popular iShares Core U.S. Aggregate Bond ETF, focus on safe, investment-grade bonds. But BTOT goes beyond, adding new types of bonds that weren’t as common decades ago. This can help investors handle today’s unpredictable markets.

Why This Matters for Investors

For people who want steady income but worry about rising interest rates, BTOT could be a smart addition. The fund mixes different kinds of bonds, which can help smooth out the bumps when markets get rocky. A recent study by Morningstar found that diversified bond portfolios had less risk and steadier returns than single-sector funds over the last 20 years (source).

Bull Case: Why Some Experts Like BTOT

• More Choices: BTOT includes not just government and corporate bonds, but also bank loans and inflation-protected bonds. This wider mix can help balance risk and reward.
• Handles Interest Rate Changes: Floating-rate notes and bank loans in the fund can adjust if interest rates rise, which could protect investors from losing money.
• Potential for Higher Yield: BTOT takes on a bit more credit risk but could pay slightly more than regular core bond funds.
• Modern Approach: The fund tracks a new index made with Bloomberg, expanding market coverage by 28% beyond the old standard, the Aggregate Index.
• Low Fees: The fund charges just 0.09% per year, making it affordable even for small investors.

Bear Case: What to Watch Out For

• More Credit Risk: Since BTOT includes riskier types of bonds, it could lose more value if companies or banks struggle to pay back their debts.
• Not Tested Yet: The fund is brand new, so there’s no long track record to see how it handles tough markets.
• Yield Uncertain: It’s too early to know exactly how much income BTOT will pay, since there’s no official 30-day yield yet.
• Complexity: With more types of bonds, it might be harder for beginner investors to understand what they own or how it will perform.

What Makes This Different?

BTOT is trying to solve a problem: the bond market isn’t the same as it was 30 years ago. There are more choices now, like inflation-protected securities and loans from banks. In fact, bank loans have had higher recovery rates than similar high-yield bonds in past downturns, according to S&P Global (source).

About 3.7% of BTOT is in Treasury inflation-protected securities, and around 3.5% is in bank loans. These pieces help balance out the fund, aiming for more stability even if interest rates jump or inflation rises.

Investor Takeaway

• Consider Diversification: Adding a fund like BTOT could help protect your portfolio from interest rate swings and inflation.
• Weigh the Risks: BTOT takes on more credit risk than basic bond funds, so make sure it fits your comfort level and goals.
• Start Small: Since it’s a new fund, consider trying it with a small portion of your fixed-income allocation first.
• Stay Informed: Watch for updates on BTOT’s yield and how it performs as markets change.
• Think Long Term: As always, bonds are for steady growth and income—not quick wins. Review your mix regularly to stay on track.

For the full original report, see CNBC