BlackRock's Laipply: 6 ETFs for Putting Cash to Work

BlackRock’s co-head of bond ETFs maps out fixed-income options for soft or hard landing scenarios.

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Reviewed by: Mark Nacinovich
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Edited by: Lou Carlozo

The Federal Reserve’s last dovish-sounding meeting signaled the potential for rate cuts in 2024, sparking a bond and stock rally. 

Yet even before the Fed’s meeting, portfolio strategists were calling for investors to put sidelined money to work. While cash earned up to 5% through Dec. 15, a 60-40 portfolio, using the S&P 500 and Bloomberg Barclays Aggregate as a proxy returned more 15%-16%. Cash hoarders left at least 10 percentage points on the table. 

Sure, 2023 was volatile and the gains mostly came in the last two months. but the bigger picture underscores why investors need durable, resilient portfolios in unpredictable markets, says Stephen Laipply, global co-head of bond ETFs at BlackRock Inc

Benchmark 10-year U.S. Treasury yields are down from their October highs near 5%, but there's still time to take advantage of mostly higher rates. 

Core ETF Holdings

Investors can start with core holdings and build from there, Laipply says, noting BlackRock is calling for a balanced portfolio that includes a mix of Treasurys and higher-quality corporate bonds of intermediate duration.  

A core portfolio can start with a broad-based exchange-traded fund such as the iShares Core U.S. Aggregate Bond ETF (AGG), which is up 5.3% year-to-date. Laipply says AGG, whose expense ratio is 0.03%, can pair with iShares Core Total USD Bond Market ETF (IUSB), which has an expense ratio of 0.06% and which is up 5.74% year-to-date. IUSB is similar to the AGG but includes more high-yield and emerging-market debt.  

Beyond a core holding, investors may want to add fixed-income exposure depending on their risk tolerance and world view, he says. 

Investors who expect a hard landing may want to put their cash to work into longer duration, beyond the belly of the curve, Laipply says, such as iShares 20+Year Treasury Bond ETF (TLT), which is up 2.93% year-to-date.  

This fall, investors flocked to the fund and TLT has garnered $22.95 billion in inflows year-to-date. Buyers are likely hoping for a higher total return when the Fed cuts rates, even though TLT was losing money until recently.  

Laipply says it can still make sense to add duration, noting that historically high-quality duration is a good diversifier against risk assets., “In particular, long-dated Treasurys have been a really good diversifier relative to, say, just the AGG,” he says. 

Investors betting on a soft landing may want to take credit risk to reap higher income, especially if they expect positive corporate earnings.

Bond ETFs 

Credit has been an under-the-radar performer this year as many credit-focused funds suffered outflows until recently, despite higher returns. The iShares iBoxx USD High Yield Corporate Bond ETF (HYG) is up more than 11% so far this year. 

Laipply pointed to a fund nearing its one-year anniversary that may interest higher-risk investors, BlackRock AAA CLO ETF (CLOA). It’s an actively managed fund seeking both capital preservation and current income through investing in AAA collateralized loan obligations. It’s seen more than $61 million in flows so far this year. It has an expense ratio of 0.20% and is up 8.4% year-to-date. 

With fixed income offering the highest yields in 20 years, BlackRock is bullish on bonds, forecasting global bond ETF assets under management to reach $6 trillion by 2030.

Laipply says that besides the well-known advantages of transparency and tax-efficiency with ETFs, advisors want their favorite strategies and access to managers in an active ETF, particularly for model portfolios. He points to the $423.8 million in assets gathered by the actively managed BlackRock Flexible Income ETFs (BINC).

“That allows them to have those exposures inside of these all-ETF model portfolios. It just makes the whole thing a lot cleaner and easier for them,” he says. 

Note: Updates CLOA performance in 13th paragraph and corrects BINC assets in penultimate paragraph.

Debbie Carlson focuses on investing and the advisor space for U.S. News. She is an internationally published journalist with bylines in publications including Barron's, Chicago Tribune, The Guardian, Financial Advisor, ETF Report, MarketWatch, Reuters, The Wall Street Journal and others.