BlackRock’s bond guru has a new ETF aiming for a 7% yield

Published Tue, May 23 20231:09 PM EDTUpdated Tue, May 23 20232:37 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Asset management giant BlackRock is putting one of its biggest names at the helm of a new exchange-traded fund in the booming fixed income space. BlackRock's Flexible Income ETF (BINC) began trading Tuesday and is managed by Rick Rieder, the firm's chief investment officer of global fixed income. The actively managed fund has a net expense ratio of 0.40%. "For the average investor, it's pretty hard to differentiate in fixed income. ... And what people have found more and more is that I want to get the exposure, but I'd love some help around doing it," Rieder said at a media event. The fund holds fixed income from multiple sectors, including high-yield bonds, European investment-grade debt and emerging market debt. The fund is targeting a yield of roughly 7%, Rieder said, with the initial portfolio coming out to about 6.7%. The portfolio manager said he is still skeptical of the U.S. falling into a deep recession but does expect the economy to slow later this year, with the Federal Reserve possibly cutting rates in 2024. The fund will focus mainly on fixed income that matures in two to five years, which will become more attractive as the economy slows, Rieder said. "That's going to allow the Fed to bring rates closer to normalcy. That's why people are looking to kind of lock it in. And the curve is so inverted, that the yield you have to give up to go further out the curve and the risk you have to take to go further out the curve doesn't really warrant it today. ... So, there's a sweet spot today in that two-to-five-year point," Rieder said. The fund is fully transparent, detailing its holdings on the ETF's website . Interest in ETFs for bonds and other income strategies has boomed in the past year and a half, with the Fed hiking interest rates and stocks down since the start of 2022. Rachel Aguirre, head of U.S. iShares product, said that there is about $1.3 trillion in bond ETFs in the U.S. and that BlackRock expects the global bond ETF market will reach $2 trillion by next year. Active ETFs have also started to gain traction in 2023, though the industry remains dominated by passive index funds. In addition, BlackRock debuted an active equity fund. The BlackRock Large Cap Value ETF (BLCV) is managed by Tony DeSpirito, the firm's global chief investment officer of fundamental equities.