2021 Semi-Annual Report (Unaudited)
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MARCH 31, 2021 2021 Semi-Annual Report (Unaudited) BlackRock Funds V • BlackRock GNMA Portfolio • BlackRock Income Fund • BlackRock U.S. Government Bond Portfolio Not FDIC Insured - May Lose Value - No Bank Guarantee The Markets in Review Dear Shareholder, The 12-month reporting period as of March 31, 2021 reflected a remarkable period of disruption and adaptation, as the global economy dealt with the implications of the coronavirus (or “COVID-19”) pandemic. As the period began, the response to the virus’s spread was well underway, and countries around the world instituted economically disruptive countermeasures. Stay-at-home orders and closures of non-essential businesses became widespread, many workers were laid off, and unemployment claims spiked, causing a global recession and a sharp fall in equity prices. As April 2020 began, stocks were near their lowest point since the beginning of the pandemic. However, a steady recovery began, as businesses started re-opening and governments learned to adapt to life with the virus. Equity prices continued to rise throughout the summer, fed by strong fiscal and monetary support and Rob Kapito improving economic indicators. Many equity indices neared or surpassed all-time highs late in the reporting President, BlackRock Advisors, LLC period following the implementation of mass vaccination campaigns and passage of an additional $1.9 trillion of fiscal stimulus. In the United States, both large- and small-capitalization stocks posted a significant advance. International equities also gained, as both developed countries and emerging markets rebounded substantially. Total Returns as of March 31, 2021 The 10-year U.S. Treasury yield (which is inversely related to bond prices) was near all-time lows as the period 6-Month 12-Month began, reflecting a reduced investor appetite for risk. However, inflation concerns from a rapidly expanding U.S. large cap equities 19.07% 56.35% economy raised yields late in the reporting period, leading to a negative overall return for most U.S. Treasuries. (S&P 500® Index) In the corporate bond market, support from the U.S. Federal Reserve (the “Fed”) assuaged credit concerns and U.S. small cap equities 48.05 94.85 led to positive returns for corporate bonds, particularly high-yield corporates, which gained substantially. (Russell 2000® Index) The Fed remained committed to accommodative monetary policy by maintaining near zero interest rates and International equities 20.08 44.57 by announcing that inflation could exceed its 2% target for a sustained period without triggering a rate increase. (MSCI Europe, Australasia, Far East Index) To stabilize credit markets, the Fed also continued purchasing significant quantities of bonds, as did other influential central banks around the world, including the European Central Bank and the Bank of Japan. Emerging market equities 22.43 58.39 (MSCI Emerging Markets Looking ahead, while coronavirus-related disruptions have clearly hindered worldwide economic growth, Index) we believe that the global expansion will continue to accelerate as vaccination efforts ramp up and pent-up 3-month Treasury bills 0.06 0.12 consumer demand leads to higher spending. In early 2021, President Biden signed one of the largest economic (ICE BofA 3-Month U.S. rescue packages in U.S. history, which should provide a solid tailwind for economic growth. In our view, inflation Treasury Bill Index) is likely to increase somewhat as the expansion continues, but moderate inflation is less likely to be followed by U.S. Treasury securities (8.88) (8.23) interest rate hikes that could threaten the economic expansion due to the change in Fed policy. (ICE BofA 10-Year U.S. Treasury Index) Overall, we favor a positive stance toward risk, with an overweight in equities. We see U.S. and Asian equities U.S. investment grade bonds (2.73) 0.71 outside of Japan benefiting from structural growth trends in technology, while emerging markets should be (Bloomberg Barclays U.S. particularly helped by a vaccine-led economic expansion. While we are neutral overall on credit, rising inflation Aggregate Bond Index) should provide tailwinds for inflation-protected bonds, and global high-yield and Asian bonds also present Tax-exempt municipal bonds 1.46 5.29 attractive opportunities. We believe that international diversification and a focus on sustainability can help (S&P Municipal Bond Index) provide portfolio resilience, and the disruption created by the coronavirus appears to be accelerating the shift toward sustainable investments. U.S. high yield bonds 7.35 23.65 (Bloomberg Barclays U.S. In this environment, our view is that investors need to think globally, extend their scope across a broad array of Corporate High Yield 2% asset classes, and be nimble as market conditions change. We encourage you to talk with your financial advisor Issuer Capped Index) and visit blackrock.com for further insight about investing in today’s markets. Past performance is not an indication of future results. Index performance is shown for illustrative purposes only. You Sincerely, cannot invest directly in an index. Rob Kapito President, BlackRock Advisors, LLC 2 T HIS P AGE IS NO T P AR T OF Y OUR F UND R E P OR T Table of Contents Page The Markets in Review ................................................................................................... 2 Semi-Annual Report: Fund Summaries ....................................................................................................... 4 The Benefits and Risks of Leveraging .......................................................................................... 11 About Fund Performance ................................................................................................. 12 Disclosure of Expenses ................................................................................................... 13 Derivative Financial Instruments ............................................................................................. 13 Financial Statements: Schedules of Investments ............................................................................................... 14 Statements of Assets and Liabilities ......................................................................................... 78 Statements of Operations ................................................................................................ 81 Statements of Changes in Net Assets ........................................................................................ 82 Financial Highlights ..................................................................................................... 84 Notes to Financial Statements ............................................................................................... 99 Statement Regarding Liquidity Risk Management Program ............................................................................. 115 Additional Information .................................................................................................... 116 Glossary of Terms Used in this Report .......................................................................................... 118 3 Fund Summary as of March 31, 2021 BlackRock GNMA Portfolio Investment Objective BlackRock GNMA Portfolio’s (the “Fund”) investment objective is to seek to maximize total return, consistent with income generation and prudent investment management. Portfolio Management Commentary How did the Fund perform? For the six-month period ended March 31, 2021, the Fund outperformed its benchmark, the Bloomberg Barclays GNMA MBS Index. What factors influenced performance? The largest contributors to the Fund’s performance versus the benchmark were relative value strategies within the GNMA coupon stack, most notably up-in-coupon trades. Out-of-benchmark allocations also contributed positively to relative performance in particular an exposure to fixed rate agency collateralized mortgage obligations (“CMOs”). There were no material detractors from the Fund’s relative performance. Describe recent portfolio activity. The Fund’s allocation to agency mortgage-backed securities (“MBS”) remained essentially unchanged over the period. Along the GNMA coupon stack, the Fund increased exposure to lower coupons (2.5% and 3%). The Fund increased its allocation to agency commercial mortgage-backed securities (“CMBS”) during the period primarily in the form of multi-family transactions. The Fund slightly increased its modest allocation to agency MBS derivatives (interest-only and inverse interest-only instruments), as well as its allocation to U.S. Treasuries. The Fund held a small percentage of net assets in derivatives as a means to manage risk to allocations in MBS and securitized assets. The Fund’s use of derivatives had a positive impact on Fund performance during the period. Describe portfolio positioning at period end. The Fund maintained an overweight stance to 30-year 3% coupon MBS with underweights primarily to the lower part of the coupon stack, such as the 2% coupon. The Fund also maintained allocations to deeply seasoned higher coupon mortgage pools. The Fund continued to hold allocations to agency CMOs with prepayment-protected, seasoned collateral, as well as an out-of-benchmark allocation in government-guaranteed, AAA-rated CMBS. The Fund closed the period with a below-benchmark stance with respect to overall portfolio duration (and corresponding sensitivity to interest rate changes). The views expressed reflect the opinions of BlackRock as