BlackRock has launched two new fixed income ETFs designed to provide investors with greater granularity in US bond exposures.
iShares $ Intermediate Credit Bond UCITS ETF (ICBU) invests in a subset of US investment grade bonds, with maturity dates between one and 10 years. The firm writes that the fund provides exposure to a broad array of investment grade corporate, sovereign, supranational, local authority and non-US agency bonds. The fund offers income generation potential relative to US treasuries with similar maturities.
iShares $ TIPS 0-5 UCITS ETF (TIP5) invests in short-term Treasury Inflation-Protected Securities and aims to provide an inflation hedge with lower interest rate risk, while offering growth potential. The bonds included in the underlying index have a duration ranging between zero and five years and are US dollar denominated.
The global bond ETF industry achieved its best quarter on record with USD44.5 billion inflows in Q1 2017. BlackRock now offers 86 bond ETFs in Europe, offering granular exposures across duration and risk levels.
Speaking at the annual bond ETF media event in London last week, Brett Olson, Head of iShares Fixed Income EMEA at BlackRock, said; “Our aim is to empower investors when investing in the bond markets, and more and more clients are coming to us with ideas for product launches. This thirst for granularity is symptomatic of a broader shift among asset allocators towards ‘being active with passive’ to meet their desired goals. We expect bond ETFs to become more engrained as the tool investors – from funds buyers to bond buyers – look to form part, or in many cases the basis, of their bond allocations.”
Chris Allen, European Fixed Income Portfolio Manager at BlackRock, said “Before bond ETFs came along, cash bonds and derivatives were the main tools we had to translate our views into portfolio allocation and generate alpha. As the selection and size of bond ETFs has grown, we now have an additional tool to consider to cost-effectively allocate to sectors. In addition, they are an invaluable source of daily information on where money’s going, and a means of managing the short terms flows in and out of our mutual funds.”
BlackRock’s ETF event produced three key points on ETFs. Firstly that all investing is active. The firm writes that every investor is actively choosing from a variety of tools to implement investment strategies, aim to achieve return targets, manage risk levels and control costs. On a portfolio level, as investors continue to combine active and index funds to create portfolios that achieve their intended outcomes, ETFs will increasingly become part of the ‘active investing’ toolbox.
Secondly, there is a new focus of portfolio implications: conversations with clients have evolved towards analysis on how bond ETFs affect the dynamics of their portfolios. The products have proved their worth through volatile periods in markets providing strong impetus for many investors to improve their level of understanding and incorporate them into portfolios, often blending active and indexed solutions to achieve their desired outcome.
Thirdly and finally, investors are seeing ETFs as one product with many applications, writing that while ETFs continue to be used for strategic long only positions, investors are being increasingly creative in their uses of ETFs – whether they are institutions simplifying their portfolios by exchanging a long list of securities for ETFs, or financial advisers building diversified ETF-based portfolios for their clients.