There are many reasons to celebrate the BlackRock Flexible Income ETF (BINC). The actively managed multisector ETF launched less than 15 months ago. It is already approaching $4 billion in assets. It's also now among the larger active fixed income ETFs joining products from Fidelity, JPMorgan, and PIMCO.
BINC has risen 9.4% in the one-year period ended August 9. This popular fixed income fund has outperformed index-based iShares Core Total USD Bond Market ETF (IUSB) by over 200 basis points. The active ETF also sports a 6.0% 30-day SEC yield.
The fixed income ETF recently had meaningful exposure to agency mortgage-backed securities (12% of assets), investment-grade corporate bonds (12%), high-yield corporate bonds (40%), and CLOs (11%). BINC also had exposure to emerging market debt and asset-backed securities. It is truly a best-ideas active fixed income ETF. It carries an expense ratio of 0.40%.
BlackRock’s ETF team rang the closing bell at the New York Stock Exchange this week. This was in recognition of BINC’s success and the accessibility of fixed income ETFs, which trade like a stock.
On behalf of VettaFi, I was on hand and spent time with Rick Rieder, BlackRock’s CIO of global fixed income and lead manager of BINC.
VettaFi: Why is now a good time to look to active management for fixed income exposure?
Rieder: I continue to believe that this is a golden age for fixed income investing. Interest rates have clearly seen their highs. And over the next year or so, they'll see cycle lows since the Fed started its rate hiking process. That means investors can access some great yields and not have to take any big risks to get them. Today, there is an incredible opportunity to build a portfolio that yields close to 7% with a realized volatility of less than 3%.
There are 68,000 securities in fixed income, which creates such diversity of opportunity. However, for an individual investor, these places can be hard to find. The beauty of BINC is we can move around and take advantage of where the opportunity is; for example, places that can be hard to access like agency mortgages, AAA CLOs, and certain areas of emerging market debt.
The opportunity for income and convexity of returns is, arguably, the best we’ve seen in a long time.
VettaFi: What sectors look most appealing?
Rieder: Credit is in the best fundamental shape I’ve ever seen it in my career. Companies have termed their debt out; the cash flow coverage is still good. In BINC, we are running a 40% allocation to high yield today.
In addition, we like areas such as AAA CLOs, commercial mortgage-backed securities, asset backed securities, where you can build a high level of safe yield without excessive risk.
Moving forward, we think investors can focus on owning yielding assets centered around the middle part of the yield curve for yield, income, and potentially further price return.
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