FIXED INCOME FOR TACTICAL ASSET ALLOCATION

The challenge

How can I make a tactical allocation to a precise pocket of the fixed income market?

Investors seeking to implement tactical asset allocation views on precise portions of the fixed income market in response to a macro market event require a nimble investment vehicle that gives immediate market exposure.

The action

For example, an investor seeking to access global “fallen angels” following Covid-19 market volatility in Q1 2020 which led to increased supply of fallen angels’ issuers* (see graph below).

“Fallen angels” is a term used to describe issuers that were rated investment grade either at issuance or at any time since issuance which then subsequently have been downgraded to high yield.

Global “fallen angels” market

Global fallen angels market

1 Source: Bloomberg, Barclays, as of 31 August 2020.

Fallen Angels Index is represented by the Bloomberg Barclays Global Corporate ex EM Fallen Angels capped Index. All amounts are given in USD. Case studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience and should not be interpreted as advice or a recommendation.

The outcome

By making a short-term allocation to global fallen angels’ high yield corporate bonds through an ETF an investor could gain immediate exposure to over 400 global corporate bonds from developed market issuers, which have been downgraded to high yield, having previously been investment grade rated to capture this event.2

2 Source: Based on the number of bonds in the Bloomberg Barclays Global Corporate ex EM Fallen Angels capped Index as at 31 August 2020.

WHY INDEXING?

Key

Immediate access to precise pocket of market

Jar of shapes

Exposure to multiple global bonds in one trade

Wrench

Tool to take short-term tactical view

WAYS WE CAN HELP YOU

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Source: BlackRock, June 2020. All case studies included are for illustrative purposes only.