Investors looking for income should block out the “noise” rocking the markets these days — and look beyond traditional fixed-income holdings for attractive yields, according to BlackRock’s Russell Brownback. Concerns over President Donald Trump’s tariffs have caused market volatility and some teetering in the 10-year Treasury yield. However, the underpinnings of the economy are still profoundly solid, he said. “You’ve got a structurally tight labor market. You’ve got a private sector balance sheet that is pristine. You’ve got wealth levels at record highs outright and versus incomes,” said Brownback, head of BlackRock’s global macro positioning team within fixed income. The artificial-intelligence revolution is causing infrastructure build out, which should continue through the rest of the decade, and productivity enhancements are in early innings, he said. “There’s going to be noise about policy implementation, but we feel pretty good about the underpinnings of the economy today, in ways that will keep the credit cycle fairly benign,” Brownback said. Income rather than duration He prefers looking outside of the Bloomberg U.S. Aggregate Bond index, which tracks U.S. investment-grade bonds, because the fixed-income regime has changed. Brownback also noted that the Treasury market faces risks due to policy and inflation uncertainties. “Fixed income, to us today, is about income as opposed to duration,” Brownback said. “These strategies that can move away from these traditional benchmark holdings are really the way to optimize the regime.” Duration is a measurement of a bond’s price sensitivity to fluctuations in interest rates. Longer-dated bonds tend to be more sensitive to sharp swings in rates. Brownback has been at BlackRock since 2009 but his working relationship with Rick Rieder , the firm’s chief investment officer of global fixed income, goes back even further. The pair has worked together for 30 years, first at Lehman Brothers and then at R3 Capital Partners before coming to BlackRock. In addition to working on the firm’s multi-sector fixed-income strategies, Brownback is a portfolio manager on the BlackRock Strategic Income Opportuniti es Fund (BASIX) . The fund has three stars and a gold rating from Morningstar. It has a 30-day SEC yield of 4.47% and a net expense ratio of 0.99%. The fund’s institutional shares has four stars and a gold rating from Morningstar. BASIX 1Y mountain BlackRock Strategic Income Opportunities Fund (A shares) High-quality securitized assets More than a quarter of the fund’s assets is in securitized products, Brownback’s favorite area to invest right now. Some 6.8% of the assets are in non-agency mortgage-backed securities and 6.1% is in commercial MBS . Another 5.7% is in asset-backed securities , and 8.5% is in collateralized loan obligations . “There is so much idiosyncratic opportunity there,” he said. Brownback takes a barbell approach when investing in securitized products. “By and large, very high-quality, short-dated, triple-A parts of the cap stack across all those sub-asset classes screen very cheaply to us relative to corporate credit,” he said. On the lower-rated side, he sticks with single-asset, single-borrower positions within commercial mortgage backed securities. “That is really going to be geography dependent. It’s going to be property dependent,” he said. There are also select opportunities in high-yield bonds in the U.S., Europe and Asia, Brownback said. These corporate bonds have become an increasingly high-quality asset class, particularly in the United States, he noted. The ICE BofA US High Yield Index was composed of about 35% BB-rated bonds and 20% in CCC about 15 years ago and today, it is over 50% BB and only 10% CCC, he said. While he isn’t allocating much to investment-grade credit , he has some holdings in European investment grade. The currency conversion to U.S. dollars can be very attractive and the technicals are very good, he said. The fund also has about 22% in agency residential mortgages. They look cheap historically compared to investment-grade credit, but they are suffering from some negative technicals, he said. The asset class has negative convexity, which is a measure of the relationship to bond prices and bond yields, he said. “We don’t think rates are going too far in either direction, so that negative convexity won’t be realized,” Brownback said. “We actually think there’s a little bit better value in what is a highly liquid sector than the investment-grade market. But of course, we’re going to dynamically pivot back and forth between those opportunistically.”
