Karen Schenone, fixed income strategist with BlackRock, expects one or two more hikes this year, which keeps her safely within the consensus view. But there’s more to worry about with regard to the Fed than overnight lending rates. “There are also concerns over what happens when the Fed starts tapering its balance sheet, and what that will mean for long term rates,” she says, just posing the question and not giving BlackRock’s view on the matter.
Schenone does provide RIA Channel founder Julie Cooling with some tips on bond allocation in preparation for a rising rate environment, however.
The fixed income market is on a tear this year. Schenone estimates that the entire industry has taken in around $41 billion in fresh money in fixed income ETFs alone, with BlackRock bringing in the lion’s share of that at $20 billion. She says emerging market debt has been a stand out in terms of flow. They own the iShares JP Morgan USD Emerging Market Bonds (EMB) and the iShares Local Currency Emerging Market Bonds (LEMB) exchange traded funds.
Both funds have also been a standout in terms of performance. LEMB is up 10% year-to-date ending June 14, followed by EMB, which is up 5.2%. Their 3-7 year (IEI) and their 7-10 year (IEF) US Treasury ETFs are up 1.4% and 2.6% respectively, reflecting the yield curve quite well.
Schenone also explains how BlackRock works with advisors, getting them up to speed on how bond ETFs work, and how they can be used in an overall fixed income strategy for clients instead of mutual funds. Advisors use BlackRock for more than just an iShares holding, but also for consulting on
portfolio construction, she notes.
