BlackRock CEO comments on 'rotation' within fixed income as a result of market volatility

By Lisa Kerner

Charlotte, N.C., July 18 - BlackRock, Inc. chairman and chief executive officer Larry Fink said macro and policy concerns earlier this year "drove a material uptick in market volatility," causing "different types of investors to react in different ways."

"What started out as a relatively steady first two months of the quarter for markets took a turn in late May following a series of global events all within a concentrated period of time," said Fink during the company's earnings call on Thursday.

These events included the Fed's comments in May regarding tapering bond purchases, the rapid selloff from leveraged investment products, policy concerns in Japan, growth in China and a downturn in emerging markets.

"We see a rotation within fixed income," he said.

"Over the past several quarters, we've been warning our clients about the asymmetric risk in their fixed-income portfolios. The 30-year bull market, which I was witnessing through my career, in fixed-income products has meant that more than a generation of investors had never seen the losses in their fixed-income portfolios."

Fink said that BlackRock sees very little in the way of change in the company's large institutional clients "as they remain committed to their long-term investment objectives."

We did see a marked change in trading-oriented investor behavior, especially with long-duration fixed-income and emerging market equity exposure, as those clients used liquidity in our iShares products to reposition their portfolios."

While the macro and policy concerns may linger, Fink said he expects to see flows moving into more flexible, nontraditional fixed-income products.

"Industry flows into flexible bond products across the industry have increased sevenfold year-to-date versus the same period last year, while flows in more traditional bond categories have fallen as great as 80%."

BlackRock is a New York-based investment management firm.

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