Blackrock is one of the largest asset management companies in the world, offering a range of investment products including short term accounts. With rising interest rates in 2022, investors are interested to know how their Blackrock returns may be impacted. This article will provide an overview of Blackrock’s short term offerings, explain how interest rates impact account returns, and give recommendations for maximizing returns in a rising rate environment. Key factors include duration risk, benchmark rates, and potential rate hikes. By understanding these dynamics, investors can make informed decisions when choosing Blackrock’s cash management solutions.
Blackrock’s cash management account options
Blackrock offers several cash management accounts for conservative investors, including the Retail Funds and iShares ETFs. The Retail Funds consist of money market funds that invest in short term fixed income like treasuries and commercial paper. The iShares options include ETFs like the iShares Short Treasury Bond ETF (SHV) which track an index of US treasury bonds with durations less than one year. The yields on these accounts are variable and will adjust based on changes in interest rates. As rates rise, the yields on new fixed income purchases in the funds will increase. However, existing holdings bought at lower rates will see less impact. On average, the funds target duration of 0-90 days means rapid yield adjustments as rates change.
How interest rates impact short term account returns
As a general rule, when interest rates rise, bond prices fall. This is because the fixed coupon payments of existing bonds are less attractive when new bonds are being issued at higher rates. Longer duration bonds see greater price declines than shorter duration. However, because of the very short duration of Blackrock’s cash management accounts, price risk is minimal. For example, the iShares Short Treasury Bond ETF has a duration of just 0.47 years, meaning a 100 basis point rise in rates would cause less than a 0.5% decline in share price. With yields moving in the offsetting direction, net returns are largely unchanged. Where investors will notice a difference is in the account yield. New purchases will earn higher yields in a rising rate environment. So while existing principal is unaffected, the overall account return will improve.
Positioning for higher rates
For investors who want to maximize returns in Blackrock’s cash accounts as rates rise, the optimal approach is laddered bond portfolios. This strategy involves blending short term bonds across a range of maturities like 3, 6, 9, and 12 months. As each bond matures, proceeds are reinvested at the new, higher prevailing rates. This allows investors to capitalize on rising yields. Carefully benchmarking returns against money market indexes can also help achieve margin incremental yield. Overall, Blackrock’s short duration cash funds are well positioned for rate hikes, and the impact on returns should be modest yet positive.
The bottom line
Blackrock offers investors cash management solutions designed to deliver stability during periods of market volatility. The yields on accounts like the Retail Money Market Funds and Short-Term Bond ETFs will adjust higher as interest rates rise, benefitting new investments. However, the short durations of the funds insulates existing principal from significant price declines. For investors seeking to maximize returns in a rising rate environment, laddered portfolios and benchmarking can help capture incremental yield. By understanding the dynamics of Blackrock’s cash accounts, investors can effectively position their short term assets.
Blackrock’s short term investment accounts provide stable returns amid rising interest rates. While new investments benefit from higher yields, short durations protect existing holdings. Laddered portfolios and benchmarking can maximize rate-driven returns.