_{RBC iShares ETFs are comprised of RBC ETFs managed by RBC Global Asset Management Inc. and iShares ETFs managed by BlackRock Asset Management Canada Limited ("BlackRock Canada").}

In this Q&A, Rick Rieder, CIO of Global Fixed Income at BlackRock Inc. shares his thoughts on the U.S. economic outlook, the trajectory for interest rates and how an actively managed approach to fixed income can help deliver stable income and portfolio diversification.

How do you interpret recent economic data, and what does it indicate for the U.S. economy?

I find it fascinating how markets tend to pivot off one number, isolating specific data points like CPI reports. The recent data aligns with what we’re seeing in claims and job openings, reinforcing the view that the economy is in solid shape. Many people were expecting a hard landing or, at best, a soft landing, but now, the data suggests a more stable trajectory. The economy is slowing in some areas, but overall, it’s maintaining a good pace.

Are we likely to see a “Goldilocks” scenario with a steadily growing economy and easing inflation?

I’m skeptical about the constant focus on “hard landing” versus “soft landing.” The U.S. is largely a service-oriented economy, and these types of economies don’t typically fall into recession easily. In contrast, goods-oriented and commodity-heavy economies are more prone to cyclical downturns. With stable spending in areas like healthcare, education and restaurants, I think we’ll continue to see consistent growth. Inflation, while easing, may stabilize around 2% or slightly above, creating a favourable environment for income generation.

With interest rates and inflation where they are, can investors still achieve meaningful income returns in fixed income?

Absolutely. Today, you can generate yields of around 6% or even more without needing to take excessive risks. For much of my career, achieving these kinds of returns meant stretching into exotic markets or high-yield bonds. Now, with interest rates where they are, you can build a strong portfolio using investment-grade credit, particularly in areas like European credit markets. This creates an opportunity to capture solid income without going too far down the risk spectrum.

With the recent launch of iShares Flexible Monthly Income ETF, how should investors be thinking about fixed income opportunities, especially with interest rates dropping?

I think this is a time where investors should care more about the “income” part of fixed income rather than the “fixed.” You don’t need long-dated assets to get good returns. Staying within the front or middle part of the yield curve—say, three to five years—can provide strong yields. With interest rates coming down, investors might not make much on long-term bonds, but fixed income portfolios can still generate a lot of income.

How does BlackRock differentiate its actively managed ETFs?

One key advantage is our global infrastructure and expertise. We have teams around the world looking at a wide array of securitized assets -- including commercial mortgages, collateralized loan obligation debt and non-agency mortgages. With 68,000 securities to analyze—far more than the S&P 500, which is driven by just a few stocks—we’re able to diversify portfolios and manage risks effectively. Our robust risk management tools ensure we maintain the right balance of credit quality, yield and geographic exposure.

Are you primarily focused on investment-grade debt, or do you see opportunities in other areas as well?

It’s a unique time because, after the pandemic, companies and consumers have largely termed out their debt, meaning defaults are less likely because there’s no near-term debt maturity. This has led to better credit quality overall. So, while we don’t need to chase highly speculative investments, there are great opportunities in single-B-rated high-yield bonds in the U.S. or double-B bonds in Europe. Combining that with high-quality investment-grade credit provides a solid, diversified income strategy.