This article is part of Morningstar's Guide to Investing for Income
Emma Wall: Hello, and welcome to the Morningstar Series, 'Why Should I Invest With You.' I'm Emma Wall, and here with me today is Ian Winship, manager of the BlackRock Absolute Return Bond fund.
Hello, Ian.
Ian Winship: Good morning.
Wall: So, I suppose the first question, I should ask is with everybody is so bearish on bonds. How do you make an absolute return in a market where prices are falling?
Winship: Well, I guess, there are two things. And those two things we've been working out with this fund in over the past four years. And the first is an obvious one, we have to be flexible. You're right, the markets are challenged. I think that's the word we use now on the basis that it's been up – it's been a long run for the past 25 years, yields have fallen, yields have compressed, it's been – as Mervyn King called it a nice time.
But I think the nice times have gone, and now what's in front of us are more uncertainty with regards to monitory policy, more dispersion, when it comes to monitory policy because I guess at the moment, and this morning's U.K. inflation numbers, I don't know if I mentioned that were, were slightly higher.
So, you have got Central Bank in one side actually looking to raise rates perhaps even this year, and you've got the ECB on the other side who may be looking to add more quantitative easing. So much more dispersion – and that's been very different from what we've been used to over the past 25 years. So, we have to be more flexible, on the basis that we understand that markets can still go up, but markets can go down. So, our approach, our product, our process, even a portfolio managers have to be a lot more flexible than how we've worked in the past.
Wall: I think they need to be also be prepared for not just less return than they have been used to, but also bit of volatility because although people are mostly agreed that yields are going to rise and prices are going to fall. As we saw in the States a couple of months ago, everybody was incredibly bearish on t-bonds and then yields fell even further. So, I think there is an element of accepting that less return is going to come from bonds, accept that you still need it for a portfolio diversification, but also knowing that it's probably going to be unpredictable?
Winship: Yeah, I think that's a great point on the basis that people have become used, or investors have become used to returns that you don't necessarily associate with fixed income; 6%, 7%, 8%, I think that's as a hedge fund, in terms of what you expect. And it's going to be less predictable, it's going to be more challenging. Returns from fixed income will not be in that bracket. But what we're aiming for with the fund is simply consistency because – and this may sound a bit glib, but fixed income should be boring. You shouldn't have to worry about your fixed income allocation really.
So, I think what we're trying to do with the fund or what we have been doing with the fund is to look to produce small positives every single month. Whether the markets are going up or the markets are going down. So, consistency positive over a longer period of time, that's a big challenge, that's going to be really, really difficult, I think going forward. But that's what we'll set this fund up to do, regardless of the volatility of the market. We think we've got chance of actually being small positive month after month, after month.
Wall: Ian, thank you very much.
Winship: That's okay. Nice to meet you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
