BlackRock is recommending investors focus on ‘HALO’ (Heavy Assets, Low Obsolescence) bonds to insulate portfolios from AI disruption and broader economic volatility. These bonds, particularly within the securitized sector like MBS and ABS, offer attractive yields tied to the real economy.
The firm suggests a focus on shorter durations to maximize income potential while mitigating risk in the current uncertain market environment.
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Amidst market volatility fueled by geopolitical tensions, inflation concerns, and the rise of artificial intelligence, BlackRock is advocating for a strategic shift towards "HALO" assets – Heavy Assets, Low Obsolescence – within fixed income portfolios. These assets, characterized by their tangible nature and resilience to AI disruption, offer both attractive yields and a hedge against economic uncertainty.
Gargi Chaudhuri, BlackRock's chief investment and portfolio strategist for the Americas, emphasized the increasing value of these assets, particularly in the current environment. While acknowledging broader market concerns, she highlighted the income potential within the securitized sector, specifically commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (MBS), and asset-backed securities (ABS).
Chaudhuri recommends focusing on shorter to medium-term durations (zero to five or six years) to capitalize on front-end income opportunities. She points to the real-economy backing of these securities – residential and commercial properties, auto loans – as a key differentiator. For example, the iShares MBS ETF currently boasts a 30-day SEC yield of 4.14% with a low expense ratio of 0.04%.
The firm's strategy isn't solely based on the 'HALO' characteristic, but rather a combination of real economic fundamentals and attractive income generation. BlackRock believes these bonds can provide a stable income stream in a volatile market, offering a compelling investment opportunity for those seeking both yield and downside protection.
