BlackRock Canada has launched two new iShares strategic fixed income ETFs to help generate income for investors while addressing sensitivity to interest rate volatility.
Building on the success of the iShares Short Term Strategic Fixed Income ETF (XSI), launched earlier this year and has attracted the largest inflows of any new Canadian ETF in 2015, the iShares Conservative Short Term Strategic Fixed Income ETF (XSC) and the iShares Conservative Strategic Fixed Income ETF (XSE) will provide investors with a model-driven suite of fixed income ETFs.
"We listened to our clients and are moving to meet their needs. The success of XSI demonstrates that investors are eager for fixed income solutions to help generate income, mitigate duration risk and navigate an uncertain interest rate environment," says Pat Chiefalo (pictured), Managing Director, Head of Canadian Product for BlackRock's iShares business. "These two new funds, in combination with XSI, offer a full range of fixed income solutions, delivering investors access to BlackRock's global iShares platform."
Building a Model-Driven Fixed Income Suite: Generating Yield Amidst Interest Rate Volatility
Like XSI, XSC and XSE have been designed to respond to the realities that fixed income investors face in today's marketplace. Amidst the shifts around sustainable economic growth prospects, central banks continue to pursue – or maintain – low interest rate policies, making the search for yield a continued challenge.
XSI responded to these market conditions by offering investors a strategic, model-driven fixed income ETF aimed at generating yield while managing the uncertain interest rate outlook. Amidst continued economic shifts, investors have indicated a desire for additional fixed income solutions that can meet the needs of investors operating within the boundaries of a lower risk profile. These two new products are expected to appeal to an investor with a relatively 'conservative' risk profile through limiting their total exposure to high yield securities to 25 per cent of each fund's respective portfolio upon rebalancing. Both new products, like XSI, draw upon the full breadth and depth of BlackRock's global iShares platform, enabling investors to gain unique access to otherwise hard-to-reach international exposures such as emerging markets corporate bonds.
"Investors recognise that the current trends in monetary policy and historically low interest rates cannot last forever," says Aubrey Basdeo, Managing Director, Head of Canadian Fixed Income, BlackRock. "The Bank of Canada's decision yesterday to maintain interest rates only reinforces the "low for longer" yield outlook in domestic bond portfolios. To overcome this income challenge, some investors may want to consider alternative fixed income strategies with international exposures to generate additional yield. XSI has helped address this investor demand, and XSC and XSE will provide investors with even greater optionality."
XSC and XSE will invest primarily in securities or ETFs that provide exposure to Canadian and international fixed income securities. Both funds will seek to hedge any resulting US dollar or other foreign currency exposure, as applicable, back to Canadian dollars. XSC will also upon rebalancing, generally limit its exposure to interest rate risk by maintaining a portfolio duration of less than five years. The management fees will be 0.40 per cent for XSC and 0.50 per cent for XSE.
