iShares introduces defined maturity corporate bond ETFs

Apr 19th, 2013 | By | Category: Fixed Income

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iShares, the exchange-traded funds (ETFs) business of BlackRock, has launched four iSharesBonds Corporate ex-Financials Term ETFs. The new products, which have a range of defined maturity dates, are designed to offer investors bond-like features with the additional benefits of ETF liquidity, transparency and diversification.

iShares introduces defined maturity corporate bond ETFs

Matthew Tucker, Head of iShares Fixed Income Investment Strategy.

The ETFs provide efficient access to a diversified pool of investment-grade corporate credit with a defined maturity date. While relevant to all investors, the products are expected to appeal to institutional clients, such as bank treasurers, as well as private investors structuring a portfolio in anticipation of a planned retirement date.

The funds are linked to variants of the Barclays US Corporate Index that have maturity dates of 2016, 2018, 2020 and 2023.

The underlying indices include US dollar-denominated, investment-grade securities publicly issued by US and non-US corporate issuers that have $250 million or more of outstanding face value at the time of inclusion. The fund’s investment in non-US corporate issuers initially will consist primarily of corporate bonds issued by companies domiciled in developed countries.

As bonds mature, a proportional amount will be held in cash until final maturity of the index. At the point of final maturity, the fund will terminate and be wound up. The fund will distribute all of its net assets, after making appropriate provision for any liabilities of the fund, to then-current shareholders pursuant to a plan of liquidation. In the final months of the fund’s operations, as the bonds it holds mature, its portfolio will transition to cash and cash-like instruments including money market funds.

The four ‘iSharesBonds’ launched are as follows:

iSharesBond 2016 Investment Grade Corporate Bond ETF (IBCB)

iSharesBond 2018 Investment Grade Corporate Bond ETF (IBCC)

iSharesBond 2020 Investment Grade Corporate Bond ETF (IBCD)

iSharesBond 2023 Investment Grade Corporate Bond ETF (IBCE)

The funds have been listed on the NYSE Arca and each have an expense ratio of 0.10%.

Matthew Tucker, Head of iShares Fixed Income Investment Strategy, commented: “Bank treasurers are challenged with building diversified portfolios in an environment of low liquidity, low yields and interest rate volatility. iSharesBonds aim to meet the needs of these clients by offering the regular income and end date of a bond as well as the exchange liquidity, transparency and diversification of an ETF.”

Other ETF providers active in this space include GuggengheimBMO and RBC. US-based Guggenheim has a series of defined maturity bond ETFs linked to BulletShares indices. Their products extend out to 2020 and include both corporate bond and high yield options. Similarly, BMO and RBC, both of Canada, offer a range of ‘target maturity’ corporate bonds ETFs extending out, at various intervals, to as far as 2025.

Thus far there are no equivalents available on local exchanges in the UK or mainland Europe.

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3 Comments to “iShares introduces defined maturity corporate bond ETFs”

  1. Ken Dean says:

    Look forward to similar products being introduced for the UK market. No doubt David Stevenson will alert with a relevant article?

    • Simon Smith, CFA says:

      Hi Ken,

      I’ll keep an eye out for relevant launches here in the UK and will nudge David into covering it in his column. I’m not aware of any immediate UK/European launches in this space, but i guess iShares will be considering it. What they launch in the US is often followed up with an equivalent UK/EU launch (for example their Minimum Volatility ETFs debuted in the US, but came to Europe shortly after). A bond laddering / target-maturity ETF offering may also appeal to Lyxor and SSgA SPDR, and maybe even Vanguard or Pimco/Source. Equally, a North American ETF player could enter the UK market – BMO, RBC and Guggenheim will no doubt be considering their options to expand overseas. But my hunch would be iShares. Let’s see!

      Thanks,

      Simon.

  2. Blitzer says:

    Does anyone know of a platform (or any other way) through which you can buy this from the UK? It’s exactly what I want – US$ denominated, no interest rate risk (if held to maturity) and low cost.

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