Stocks had a rough time in 2022, but one asset class that Wall Street piled into was bonds. As inflation hit 40-year highs, the Federal Reserve aggressively raised interest rates at the fastest pace in decades.
This has made bonds more attractive than they've been in years, and many investors piled into investments with BlackRock (BLK 0.55%). BlackRock has built up a vast array of investment choices, making it easy for investors to target particular assets in a challenging market environment. Here's why BlackRock has become the go-to investment manager in the bear market.
Rising interest rates have revived fixed-income investments
Interest rates surged in 2022, reaching levels we haven't seen in roughly 15 years. These higher interest rates have attracted investors to fixed-income products, which broadly refer to investments that pay a fixed rate until maturity. The most common types of fixed-income products include government bonds, corporate bonds, and municipal bonds.
Institutions seeking fixed-income investments include banks, insurance companies, pension funds, and endowments. These institutions like fixed-income investments because they carry less risk and lower volatility, making future cash flows more predictable. Other investors that benefit from fixed-income investments are retirees, income investors, and others with a low risk tolerance.
The problem with fixed-income investments in recent years is that they haven't had very good yields. Before last year, the U.S. had been in an ultra-low interest rate environment since the Great Recession from 2007 to 2009.
For example, let's look at the yield on the two-year Treasury note -- one of the safest, most conservative investments with a relatively short duration. From 2009 to 2017, the two-year Treasury yield was below 1%. It peaked at around 2.9% in 2018 before falling back down in the following years. The two-year Treasury now yields 4.06%, a rate investors haven't been able to get since 2007. As a result, bonds are in more demand than they have been in years, and BlackRock has reaped the rewards.
2 Year Treasury Rate data by YCharts
Blackrock dominates asset management with its diverse investment products
BlackRock creates and manages investment for clients, and with $8.6 trillion in assets under management (AUM), it is the world's largest asset manager. Its secret to success is its wide array of product offerings clients can choose from so they can diversify across their portfolio.
BlackRock has over 450 exchange-traded fund (ETF) options for investors for fixed-income alone. Demand for these ETFs surge in the fourth quarter, when investors poured $47 billion into these funds.
According to Chief Executive Officer Larry Fink, clients sought tactical allocation, including investments in stocks, bonds, and other money market assets. Clients have turned to BlackRock because it offers government bonds, corporate bonds, high-yield emerging markets, municipal bonds, and products that allow them to diversify based on credit risk or duration. Additionally, BlackRock actively manages other funds, and saw another $58 billion of inflows into these fixed-income investments.
BlackRock's business offers confidence in volatile markets
BlackRock has also done a solid job of building up its technology platform alongside its product offerings, which allows clients to carefully manage their investments based on their goals and risk tolerance. It believes there is lots of room to grow in the U.S., where fixed-income ETFs represent just 2.3% of the total market.
The company's wide range of investment options continues to be its strength, and the fourth quarter was a shining example of how it capitalized on its diverse offerings. BlackRock's business has performed well despite a weak stock market -- making this a solid stock to own and ride the waves of the market with confidence.
