Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
The time to consider bonds is now
ETFs
iShares
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
1- They provide a stream of income generally higher compared to easy access bank deposit accounts. (1)
2- They offset some of the volatility investors might see from owning stocks. In fact, bonds are considered as less risky investments compared to stocks and historically showed more price stability during market turbulence. (2) As a result, investors are using them as a diversification technique to lessen the effect of market volatility on their portfolio by distributing their investments over various assets.
Risk: Diversification and asset allocation may not fully protect you from market risk.
3- Because they repay a principal at maturity, they appeal to investors who wish to preserve capital
Sources
1 - Source: Blackrock as of June 2023. Bonds are unlike bank deposit accounts as they invest in financial markets. Therefore, there is a greater level of risk to your money, because they can go up and down in value, but this can mean greater returns. Additionally, in high inflation environment, the cash held in bank deposit accounts savings are at risk of losing value. As, inflation will reduce the buying power of your money over time.
2 - Source: Russell Investments as of November 2022. Statement based on data comparison of correlation of the daily returns on the Russell 3000™ U.S. equity index and the Bloomberg U.S. Aggregate bond index from 31 December 1986 to 31 December 2022.
Sources
2 & 3 - Source: Bloomberg and BlackRock as of 31 May 2023
Starting your bond ETFs journey ? Consider iBonds ETFs
What are iBonds® ETFs
In contrast, like individual bonds, iBonds® ETFs have a fixed a maturity date. This means that investors can select ETFs with maturity dates that align with their investment horizons, allowing them to plan for specific cash flow events more effectively.
• Choose your time horizon – invest for a period which works for your needs. iBonds® are available in a range of maturities, meaning you can choose how long you want to invest your money for.
• Flexibility to adapt – if your needs change, you can buy or sell iBonds® at any time during the trading session. iBonds® ETFs trade on stock exchanges — which means iBonds® can be bought and sold just like a stock.
• Diversification – iBonds® track an underlying index and provides exposure to hundreds of bonds, across various sectors and countries. Risk: Diversification and asset allocation may not fully protect you from market risk.
What are bonds?
Bonds are a way for governments or companies to borrow money from investors, in exchange for income, which is paid out on a regular basis.What role do bonds play in a portfolio?
Bonds provide investors with 3 potential benefits when they hold them as part of their portfolios:1- They provide a stream of income generally higher compared to easy access bank deposit accounts. (1)
2- They offset some of the volatility investors might see from owning stocks. In fact, bonds are considered as less risky investments compared to stocks and historically showed more price stability during market turbulence. (2) As a result, investors are using them as a diversification technique to lessen the effect of market volatility on their portfolio by distributing their investments over various assets.
Risk: Diversification and asset allocation may not fully protect you from market risk.
3- Because they repay a principal at maturity, they appeal to investors who wish to preserve capital
Sources
1 - Source: Blackrock as of June 2023. Bonds are unlike bank deposit accounts as they invest in financial markets. Therefore, there is a greater level of risk to your money, because they can go up and down in value, but this can mean greater returns. Additionally, in high inflation environment, the cash held in bank deposit accounts savings are at risk of losing value. As, inflation will reduce the buying power of your money over time.
2 - Source: Russell Investments as of November 2022. Statement based on data comparison of correlation of the daily returns on the Russell 3000™ U.S. equity index and the Bloomberg U.S. Aggregate bond index from 31 December 1986 to 31 December 2022.
Why invest in bonds now?
Following central banks decisions to increase interest rates globally in 2022 and 2023 (2), the outlook for fixed income has become much more positive. Bonds now offer more attractive yields than they have in 15 years (3), which may create more income generation opportunities for investors.Sources
2 & 3 - Source: Bloomberg and BlackRock as of 31 May 2023
So you want to add bonds to your portfolio? Make it easy with ETFs
Unlike stocks, investing in bonds could be a bit challenging for retail investors as most bonds do not trade on an exchange—instead, buyers and sellers are required to negotiate over the counter (one on one) to agree a transaction price. In contrast, bond ETFs, like equity ETFs, trade on exchange and provide transparent pricing to a basket of multiple bonds in one transaction. While the stock exchange that the ETF is listed on is open, investors can buy and sell the ETF shares just like they would for a single stock. Investors do not have to become bond geeks or learn how to be expert bond investors to buy bond ETFs. Bond ETFs can be simply purchased just like stocks and give investors instant access to ready-made bond portfolios at low costs.Starting your bond ETFs journey ? Consider iBonds ETFs
What are iBonds® ETFs
iBonds® ETFs are an innovative suite of bond ETFs that have a fixed maturity date. They hold a diversified portfolio of bonds with similar maturity dates, aim to provide regular income payments and distribute a final pay out in their stated maturity year.
Why should I consider iBonds® ETFs instead of other bond ETFs available on the market?
Traditional bond ETFs do not have maturity date, as bonds within the ETF mature, and new bonds are being added. This gives a continuous, rolling exposure to bond markets.In contrast, like individual bonds, iBonds® ETFs have a fixed a maturity date. This means that investors can select ETFs with maturity dates that align with their investment horizons, allowing them to plan for specific cash flow events more effectively.
Benefits of iBonds® ETFs
• Easily access the bond market – iBonds® ETFs give you easy access to bond investing. Through one trade, you gain exposure to a basket of bonds and can generate attractive income.• Choose your time horizon – invest for a period which works for your needs. iBonds® are available in a range of maturities, meaning you can choose how long you want to invest your money for.
• Flexibility to adapt – if your needs change, you can buy or sell iBonds® at any time during the trading session. iBonds® ETFs trade on stock exchanges — which means iBonds® can be bought and sold just like a stock.
• Diversification – iBonds® track an underlying index and provides exposure to hundreds of bonds, across various sectors and countries. Risk: Diversification and asset allocation may not fully protect you from market risk.
Does the timing of my investment affect the yield? So do I get more if I'm in from the beginning? Or is it evenly distributed at the end?
The expected yield is dependent on the net acquisition yield of your investment. Dependent on the timing of your investment as well as on the price at which you enter the investment, you can assess your expected yield. Each individual iBonds product page has a net acquisition yield tool, on which investors can assess their net acquisition yield.
Life of an iBonds® ETF
Disclaimer:
This document is marketing material: Before investing please read the Prospectus and the PRIIPs KID available on www.ishares.com/it, which contain a summary of investors’ rights.
Risk Warnings
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
Regulatory Information
In the UK and Non-European Economic Area (EEA) countries: this is issued by BlackRock Advisors (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL, Tel: +44 (0)20 7743 3000. Registered in England and Wales No. 00796793. For your protection, calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.
In the European Economic Area (EEA): this is issued by BlackRock (Netherlands) B.V. is authorised and regulated by the Netherlands Authority for the Financial Markets. Registered office Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Tel: 31-20-549-5200. Trade Register No. 17068311 For your protection telephone calls are usually recorded.
In Italy: For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in Italian.
Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. Choose the type of iBonds® ETF you would like to invest in. Over the life of the iBonds® ETF, investors are eligible to receive dividends. An iBonds® ETF will be delisted from all relevant stock exchanges in December of the fund's maturity year (stated in the name of the fund). All the bonds in the portfolio will be sold and the total sum will be distributed across all investors.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.
© 2023 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners
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