iShares launches actively managed short-maturity bond ETF

Sep 29th, 2013 | By | Category: Fixed Income

iShares, the world’s largest manager of exchange-traded funds (ETFs), has expanded its range of fixed income products with the launch of the iShares Short Maturity Bond ETF (NEAR) on the US-based BATS Exchange.

iShares launches actively managed short maturity bond ETF

Matthew Tucker, Head of iShares Fixed Income Investment Strategy.

The fund, which is actively managed, unlike the vast majority of ETFs which track an underlying index, seeks to maximise income through diversified exposure to short-term bonds.

At least 80% of the fund must be invested in US dollar-denominated bonds rated a minimum of BBB- or higher by Standard & Poor’s or Fitch, or Baa3 or higher by Moody’s. If unrated, bonds must be determined by the management team to be of equivalent quality.

Holdings may include both fixed and floating-rate securities of varying maturities, and may comprise corporate and government bonds, agency securities, instruments of non-US issuers, privately-issued securities, asset-backed and mortgage-backed securities, structured securities, municipal bonds, money market instruments and investment companies.

A key characteristic of the fund is that it will maintain an effective duration of less than one year, thus providing investors with a tool to reduce their exposure to rising interest rates relative to longer duration bond portfolios. Effective duration is a measure of the fund’s price sensitivity to changes in yields or interest rates.

The fund also aims to help investors navigate the current low-yield environment by seeking to maximise income through the active selection by the management team of securities deemed to exhibit superior risk/return fundamentals.

The management team, led by Thomas Musmanno, CFA, who also heads up BlackRock‘s Short Duration Portfolio Team, employs a disciplined credit research process focused on a thorough analysis of an underlying issuer’s creditworthiness and valuation.

Commenting on the launch, Matthew Tucker, Head of iShares Fixed Income Investment Strategy, said: “Investors have traditionally looked to bonds to add diversity, stability and income into their portfolios. But as large areas of the bond market offer little or no yield, and with a period of rising rates likely ahead of us, investors have been rethinking their fixed income portfolio.”

He added: “Short-duration bond ETFs can provide exposure to bonds with minimal interest rate exposure and can be used to adjust an investor’s overall duration downward. iShares Short Maturity Bond ETF extends iShares’ current suite of short duration bond ETFs to provide investors with the widest range of investment choices in the ETF market, backed by the investment excellence of BlackRock’s fixed income portfolio management team.”

The fund has an expense ratio of 0.20%.

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