Blackrock’s government bond funds have been popular choices among investors looking for relatively safe fixed income investments. These funds invest primarily in short-term government securities issued by the U.S. Treasury and government agencies. In the current environment of rising interest rates, these funds can provide stability amid market volatility. However, their performance over the past few years has been mixed compared to bond market benchmarks. In this article, we will analyze the performance of Blackrock’s flagship government bond funds and examine how they may fit into an investor’s portfolio.
Blackrock’s government fund assets under management have grown steadily
Blackrock manages over $60 billion in assets across its suite of short-term government bond funds. The Blackrock Government Money Market Fund (Class I shares) has over $40 billion in assets, making it one of the largest money market funds in the industry. The fund invests in U.S. Treasury bills, notes, bonds, and repurchase agreements collateralized by U.S. government securities. Its 1-year and 5-year average annual returns are comparable to other government money market funds, although slightly lagging the yields of prime money market funds. The Blackrock Short Maturity Bond Fund, with over $20 billion in assets, maintains a portfolio of government bonds maturing in 3 years or less. This short duration positioning provides protection against rising rates. The fund has delivered positive annual returns in the range of 1-2% over the past 5 years.
Performance has been mixed compared to bond benchmarks
While Blackrock’s government bond funds provide relatively stable returns, their performance has been uneven compared to broad bond market indexes. For example, the Blackrock Short Maturity Bond Fund has underperformed the Bloomberg US 1-3 Year Government/Credit Bond index in 3 of the past 5 calendar years. In 2021, it returned -0.5% compared to the benchmark’s gain of 0.04%. The underperformance was more significant in 2018 when the Blackrock fund lost 0.98% while the index gained 1.6%. On the other hand, the Blackrock Government Money Market Fund has more closely tracked the iMoneyNet Money Fund Average Government Only Index. Last year, it returned 0.02%, slightly behind the benchmark’s 0.04% return.
Actively managed funds have struggled in efficient government bond market
The underperformance of Blackrock’s actively managed short-term government funds highlights the challenges of outperformingindexes in this highly efficient market segment. Passively managed bond index funds and ETFs have attracted significant inflows, making it difficult for active managers to find enough attractive relative value opportunities to overcome their fees. However, Blackrock’s government bond funds remain popular for their focus on high-quality government securities and daily liquidity. Conservative investors may still favor these funds over passive options to benefit from the expertise of Blackrock’s experienced portfolio management team during periods of market stress.
Consider goals and risk tolerance when evaluating government bond funds
In summary, Blackrock offers a solid lineup of low-cost government bond funds for defensive investors looking to minimize volatility. However, their recent performance track record demonstrates that investors should not expect significant outperformance in government bonds by relying on active management. Those with long time horizons focused on generating income may prefer passive bond index funds or ETFs for greater diversification. On the other hand, investors who value daily liquidity and professional oversight of government money market instruments may still find Blackrock’s actively managed offerings to be worthwhile. As with any investment, understanding performance expectations and how a fund aligns with individual financial goals is key.
Blackrock’s government bond funds provide stability but have struggled to consistently outperform bond market benchmarks. Conservative investors may still find value in their active management, but index funds and ETFs should be considered by those seeking greater diversification over the long term.