Idea Of The Week: This BlackRock Fund Helps you Lock In Good Return during Rate Hikes!

• With the Fed becoming more hawkish and the market re-pricing a rate hike this year, the fund has an effective duration of only 2.0 years and is extremely insensitive to rising interest rates, making it a safe haven for bond portfolios; also, it pays monthly dividends and has a yield to maturity of up to 4.90%.
• Short maturity means bonds mature quickly and can be reinvested at higher yields – interest rate hikes are not a headwind for this fund, but rather a tailwind that gradually increases returns.
• This fund has demonstrated outstanding returns and resilience among its peers and has been selected as our fund pick for many consecutive years. With a management fee as low as 0.75%, it is an ideal choice for core defensive portfolio allocation in a rising interest rate environment.

Since Kevin Warsh took office as the new Chairman of the Federal Reserve, monetary policy has taken a sharp turn. While the June meeting saw the federal funds rate held steady for the fourth consecutive time, remaining between 3.50% and 3.75%, the latest dot plot median forecasts a rise to 3.8% by the end of the year, implying at least one rate hike this year. Market bets on a rate hike before December have surged from about 20% a month ago to nearly 80%. This is driven by renewed inflation – the core PCE price index has risen from 3.0% at the end of last year to 3.3%, and the sharp rise in energy prices due to geopolitical tensions has completely reversed earlier expectations of rate cuts.

For bond investors, rising interest rates are a major enemy of long-term bonds: the longer the maturity, the greater the decline in price as yields rise. To continue participating in the bond market in a rising interest rate environment while controlling principal risk, shortening the maturity is the most direct approach. This article introduces one of our platform's selected funds – BlackRock US Dollar Short Duration Bond Fund – which perfectly meets this need.

Basic Information

This fund is a sub-fund of BlackRock Global Funds, established in 2002. As of the end of May 2026, it had approximately US$1.21 billion in assets under management. Regarding investment mandates, the fund will invest no less than 80% of its assets in investment-grade bonds and no less than 70% in U.S. dollar bonds with a maturity of less than five years, with an average maturity not exceeding three years. It also has the flexibility to allocate securitized assets to enhance returns. The A3 class pays monthly dividends of 4.59% and does not contribute from capital, resulting in relatively "net" cash flow. Fees include a management fee of 0.75% and annual recurring expenses of approximately 0.88%. The platform has a minimum initial investment of US$5,000, making it a moderately accessible investment.

Investment Style and Allocation

The fund's most distinctive feature is its ability to flexibly identify interest rate spread opportunities based on high-rated assets. In terms of sector allocation, the fund holds approximately 42% in US Treasury bonds (compared to a benchmark of 69%), significantly reducing the Treasury bond weighting and instead increasing its allocation to investment-grade industrials (18.3%) and investment-grade financials (14.8%), as well as securitized assets completely absent from the benchmark – including asset-backed securities (13.3%), institutional and non-institutional mortgage-backed securities (approximately 15% combined), and commercial mortgage-backed securities (4.9%), with an additional 6% in high-yield bonds (see Chart 1). It is worth noting that some of these mortgages and asset-backed securities are floating-rate instruments, meaning their coupon rates will reset upwards as interest rates rise, thus benefiting the fund in a rate-hike environment.

Chart 1:  Allocation of the fund and benchmark 

In terms of credit quality, the portfolio exhibits a "dumbbell-shaped" structure: on the one hand, AAA-rated bonds account for a significant 26.6% of the fund (compared to only 3.0% in the benchmark), primarily from US Treasury bonds and institutional securitized assets; on the other hand, the fund allocates approximately 24% to BBB-rated bonds and less than 9% to non-investment-grade bonds, thereby enhancing the overall yield (see Table 1). Since the credit ratings of institutional mortgage-backed securities are aligned with those of the US government, these securitized assets, while increasing returns, do not compromise the overall quality of the portfolio. With this allocation, the portfolio's yield to maturity reaches 4.90%, significantly higher than typical pure Treasury bond or investment-grade funds.

Table 1: Rating Allocation of the fund and benchmark

Rating	The fund	Benchmark
AAA	26.6%	3.0%
AA	29.3%	74.2%
A	19.0%	12.4%
BBB	24.3%	10.4%
BB or below	8.9%	0.0%
Data Source: BlackRock, iFAST compilations Data as of 31 May 2026

Regarding duration, although approximately 40% of the holdings mature in 3 to 5 years, due to the amortization (gradual repayment of principal) characteristic of securitized assets, the fund's weighted average maturity is 3.0 years, but the effective duration is only 2.0 years. In other words, even if yields rise, the decline in fund bond prices is quite limited. In addition, the fund holds more than 1,300 bonds, while the top ten holdings account for only 18.4%, indicating a high degree of diversification of risk from individual issuers and a fairly robust overall portfolio.

Performance and Resilience

In terms of performance, the fund has consistently outperformed its benchmark in recent years. We chose Bloomberg US Agg Total Return Value Unhedged USD Index (LBUSTRUU index, representing return of USD investment grade bonds) for comparison. As of the end of May 2026, the fund's return over the past year was 3.9% (LBUSTRUU index 3.8%); historically, its cumulative return over the past five years has exceeded the benchmark by more than 8% (see Chart 2). It is worth noting its performance during the last round of interest rate hikes: during the Federal Reserve's rapid rate hikes in 2022, the fund only fell by 5.1%, far better than the more than 10% decline in the index during the same period; and precisely because of its short maturity, the higher yield was quickly reflected in the portfolio, and the fund recorded returns of over 4.5% for the following two years, completely recovering the losses of 2022 in just two years. This is precisely the core advantage of short-term bonds during a rate-rising cycle—limited declines and the ability to quickly recover through rising yields.

Chart 2: 5-year return of the fund and LBUSTRUU index (reset 100 as basis)

Another highlight of the fund is its resilience across various market downturns. Compared to peer USD funds, ranked by the magnitude of declines during each market downturn, this fund demonstrates the highest level of resilience, ranking among the top in its class (see Chart 3). For example, during the most recent downturn in February and March 2026, the fund only fell by less than 1%, placing it among the top performers in its category; in contrast, more aggressive diversified income funds fell by nearly 2.4% during the same period. This resilience is particularly valuable in a market characterized by rising interest rates and increased volatility.

Chart 3: Resilience of the fund and peers during slumpsNumerically speaking, the fund's safety margin is also quite substantial: roughly estimating with a 4.9% yield to maturity and a duration of approximately 2.0 years, the yield would need to rise by more than 2.4 percentage points within a year for the fund's total return to turn negative. This buffer provided by high interest rates is precisely the biggest source of confidence for short-term bonds during periods of interest rate hikes.