BlackRock U.S. Mortgage Fund Q2 2024 Commentary

BlackRock

7–9 minutes

JuSun

Average annual total returns (%) as of 6/30/24

2Q24 (not annualized)	YTD (not annualized)	1 Year	3 Year	5 Years	10 Years
Institutional ( MUTF: MSUMX )	0.77	1.83	5.28	-1.85	0.72	1.81
Investor A (Without Sales Charge) ¹	0.82	1.71	5.14	-2.07	0.47	1.55
Investor A (With Sales Charge) ¹	-3.22	-2.36	0.93	-3.39	-0.35	1.14
Morningstar Multisector Bond Category Avg.	0.79	2.17	7.35	0.09	2.03	2.55
U.S. Mortgage-Backed Securities ²	0.07	-0.98	2.12	-2.92	-0.76	0.89

Expenses for Institutional shares: Total 0.59% ; Net, Including Investment Related Expenses (dividend expense, interest expense, acquired fund fees and expenses and certain other fund expenses) 0.45% . For Investor A shares: Total 0.92% ; Net, Including Investment Related Expenses 0.70% . Institutional and Investor A shares have contractual waivers with an end date of 06/30/2025 terminable upon 90 days' notice. For certain share classes, BlackRock may voluntarily agree to waive certain fees and expenses in which the adviser may discontinue at any time without notice. Expenses stated as of the fund's most recent prospectus. Data represents past performance and is no guarantee of future results. Investment returns and principal values may fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original cost. All returns assume reinvestment of dividends and capital gains. Current performance may be lower or higher than that shown. Refer to Investment Management & Financial Services | BlackRock for most recent month-end performance. Investment returns reflect total fund operating expenses, net of all fees, waivers and/or expense reimbursements. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an unmanaged index. Share classes have different sales charges, fees and other features. Returns with sales charge reflect deduction of current maximum initial sales charge of 4% for Investor A shares. Institutional shares have no front- or back-end load. Institutional shares have limited availability and may be purchased at various minimums. See prospectus for details. Net Expenses Excluding Investment Related Expenses for Institutional shares: 0.45% ; for Investor A shares: 0.70% .

Commentary as of 06/30/24

The fund posted returns of 0.77% (Institutional shares) and 0.82% (Investor A shares, without sales charge) for the second quarter of 2024. Security selection within the non-agency residential mortgage-backed securities ('RMBS') and commercial mortgage-backed securities ('CMBS') sectors contributed to performance. The fund's shorter duration profile (lower sensitivity to interest rate movements) was also additive. The allocation to legacy non-agency RMBS increased during the quarter. Within CMBS, additions focused on senior single-asset, single-borrower (SASB) paper. Allocations to floating rate agency collateralized mortgage obligations (CMOs) rose. The fund's duration profile remained between three years and a little over four years.

Top 10 holdings (%)

Fhlmc 30yr Umbs Super	11.94
Umbs 30yr Tba(reg A)	11.44
Fhlmc 30yr Umbs	5.14
Umbs 30yr Tba	4.29
Fnma 30yr Umbs	2.74
Gnma2 30yr Tba(reg C)	1.82
Gnma_22-88dIa	1.11
Gnma_21-97cLi	0.86
Fnma_24-7Ia	0.79
Fnma 30yr Umbs Super	0.78

Contributors

Within CMBS, senior conduit and SASB allocations across the capital structure were helpful. Allocations to non-agency RMBS were the main contributor to performance, specifically legacy RMBS and single-family rentals, as well as nonperforming and re-performing mortgage loans. An allocation to lower-coupon agency CMO interest-only bonds was additive as spreads continued to tighten in this pocket of the market.

Detractors

Relative-value strategies within agency MBS weighed on performance during the quarter.

Further insight

Within CMBS, we continue to favor the top-of-the-capital structure across industrials, multifamily, hotels, and select office properties. Additionally, we continue to be opportunistic around non-agency RMBS, given fundamental and technical resilience in the sector, as home prices have remained robust and existing home sales have inched higher despite rising mortgage rates. We continue to hold a constructive outlook on agency MBS and see value both on an outright basis versus U.S. Treasuries and on a relative basis versus other forms of spread assets.

Important Risks: The fund is actively managed and its characteristics will vary. Holdings shown should not be deemed as a recommendation to buy or sell securities. Bond values fluctuate in price so the value of your investment can go down depending on market conditions. Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Principal of mortgage- or assetbacked securities normally may be prepaid at any time, reducing the yield and market value of those securities. Obligations of U.S. gov t agencies are supported by varying degrees of credit but generally are not backed by the full faith and credit of the U.S. gov t. The fund may use derivatives to hedge its investments or to seek to enhance returns. Derivatives entail risks relating to liquidity, leverage and credit that may reduce returns and increase volatility. Short-selling entails special risks. If the fund makes short sales in securities that increase in value, the fund will lose value. Any loss on short positions may or may not be offset by investing short-sale proceeds in other investments.

The opinions expressed are those of the fund's portfolio management team as of June 30, 2024, and may change as subsequent conditions vary. Information and opinions are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

BlackRock provides compensation in connection with obtaining or using third-party ratings and rankings.

1 The performance information for periods prior to the inception date (12/6/10) of Investor A shares is based on the fund's Institutional shares, adjusted to reflect the fees and expenses applicable to such share class. See the fund prospectus for more details. 2 The Bloomberg U.S. Mortgage-Backed Securities Index consists of fixed-rate securities, such as mortgage pools created by GNMA, FHLMC and FNMA. It is a performance benchmark for many mortgage-backed securities funds.

You should consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus and, if available, the summary prospectus contain this and other information about the fund and are available, along with information on other BlackRock funds, by calling 800-882-0052 or from your financial professional. The prospectus should be read carefully before investing.

Prepared by BlackRock Investments, LLC, member FINRA.

Not FDIC Insured • May Lose Value • No Bank Guarantee

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This post originally appeared on BlackRock.

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