BlackRock has published the findings of its Global Family Office Report, entitled "Seizing opportunities in times of change." The bi-annual study surveyed 120 single family offices with a total of assets under management of $243 billion.  

A new report by BlackRock shows how the ‘great yield reset’ has transformed the opportunity in fixed income, with yields proving more attractive for investors.

Gone are the days of the great moderation, the four-decade period that began in the 1980s marked by a decline in volatility of real GDP growth and inflation, the firm said in a statement. The new regime of greater macro and market volatility is playing out.

Volatility in rate markets reached post-Global Financial Crisis highs in March 2023, as bonds – particularly US Treasuries – experienced significant moves amid stress in the global banking sector. The new regime calls for a new playbook, with more dynamic, granular and precise asset allocation adjustments. 

A blend of index, active and private market exposures can offer investors transparency and the opportunity to be nimble in their fixed income allocation, amid greater macro and market volatility, the firm said.

The 'great yield reset' is resulting in a far greater need for portfolio flexibility in order to achieve better risk-adjusted outcomes, in BlackRock’s view.

Multi-asset portfolios have been slow to adjust to this new regime and BlackRock believes that many are still broadly constructed as they were in the previous regime. Consequently, the firm thinks that it is an opportunity to revamp portfolio construction through a rethink of fixed income and equity allocations, moving up in credit quality, while diversifying and reducing aggregate portfolio risk.

In BlackRock’s view, the new regime means that strategic asset allocation – that typically remains relatively stable – is likely to need more frequent adjustments with continuous monitoring. Findings from BlackRock client consulting indicate that client portfolios in 2022 only changed moderately, trimming equity allocations and allocating more to cash and fixed income. Overall, BlackRock Investment Institute (BII) portfolio allocation differs from what BlackRock sees on average in client portfolios, with BII for instance recommending smaller equity positions and higher weightings to inflation-linked bonds and private assets.

Ursula Marchioni, head of iShares markets and portfolio solutions group, EMEA, said: “Rates have reset, and bonds are back in most currencies. Yet working with clients and analysing their allocations, we observe that the strategic core allocation of multi-asset portfolios has been slow to adjust and is still significantly under-weighting bonds. Year to date, we have seen strong flows in fixed income products, but these are the result of mostly tactical adjustments – the big money is yet to move.”

“As we think about investors re-entering the asset class in a more material manner, blending alpha and indexing strategies remains critical. Big allocation shifts demand implementation strategies allowing for liquidity, flexibility, precision and efficient alpha. We believe blending index with alpha-seeking strategies allows investors to balance these needs,” Marchioni continued. 

Brett Pybus, global co-head of iShares fixed income ETFs, added: "Bond ETFs are made for these times, enabling investors to make rapid tactical asset allocation changes, improve operational efficiency and enhance the liquidity of fixed income portfolios. As a result, bond ETFs are a critical tool for portfolio managers, who need to be more nimble in changing market conditions.”