Fixed income investors need to be proactive about managing diversification, credit and geographic risk: BlackRock

Global deleveraging and government intervention have produced a challenging new fixed income environment that demands a higher degree of proactivity from investors, says Stephen Miller, BlackRock Australia’s head of fixed interest.

“In the current environment, fixed income investors can not afford to set and forget. They now need to be proactive about managing diversification risk, credit risk and geographic risk,” Mr Miller says.

Responding to this need, BlackRock has launched the Fixed Income Global Opportunities (FIGO) fund in Australia.

FIGO is a flexible global multi-sector fixed income strategy that seeks to achieve a positive total return. While the fund is not tied to a benchmark, it is managed to a target return of 4-6 percent per annum above the UBS Bank Bill Index, net of fees, over rolling three-year periods.

“FIGO was established in response to investors’ desire to diversify their bond portfolios away from traditional fixed income assets, in order to counter the risk to performance presented by a rising interest rate environment over the medium term,” Mr Miller says.

The fund does not focus on just one area of global bond markets. Instead, the underlying investments are a result of collaboration between portfolio managers and over 150 investment specialists globally within the BlackRock group who cover corporate, sovereign, municipal and structured bonds. The underlying strategy also takes active currency positions and can have exposure to equity markets.

“FIGO invests in a mix of traditional and non-traditional strategies that seek to provide superior risk adjusted returns and greater diversification than typical fixed income core or core plus strategies,” Mr Miller says.

“FIGO could appeal to investors looking to enhance return potential from their fixed income allocation without taking on too much risk.”

Although new to the Australian market, the FIGO strategy has been in place in a US mutual fund since 2010 and has a history of attractive returns.

“A modeled return profile for an AUD-hedged version of the US mutual fund strategy outperformed its performance target of the UBS Bank Bill index by 5.3 percent gross each year over three years, and 6.5 percent gross since inception in March 2010,” Mr Miller says.

The fund also showed positive performance during periods of rising bond yields, a consideration for fixed interest investors in the current environment.

“In eight out of 10 periods, the modeled return was positive despite rising US 10 year treasury yields,” Mr Miller says.

FIGO has a minimum investment of $50,000. The fund has no establishment fees, no contribution fees, no withdrawal fees, no switching fees and no exit fees. The annual management fee is 0.7 percent.

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