BlackRock in the US has launched a first-of-its-kind suite of fixed income ETFs that provide access to buy-write investment strategies on baskets of fixed income securities: the iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (Cboe: TLTW), iShares High Yield Corporate Bond BuyWrite Strategy ETF (Cboe: HYGW) and the iShares Investment Grade Corporate Bond BuyWrite Strategy ETF (Cboe: LQDW).
The firm writes that each ETF packages two potential income sources into one ticker – premiums generated by selling monthly call options on the underlying ETFs (TLT, HYG and LQD) and the yields from each of the underlying ETFs themselves.
“The iShares’ bond ETF platform has the world’s largest, comprehensive toolkit for individuals and institutions by providing access to the USD124 trillion fixed income market with essential building blocks for a wide variety of macroeconomic climates,” says Carolyn Weinberg, Global Head of Product for ETF and Index Investments, BlackRock. “Market participants have used a buy-write strategy on equities since options were first listed more than 50 years ago. The iShares Bond BuyWrite ETFs introduce these capabilities to fixed income, pioneering new possibilities for an asset class sitting at the center of so many long-term portfolios.”
The iShares BuyWrite ETFs aim to increase yield potential for investors, debuting during the most challenging environment for fixed income in decades due to inflation, hawkish central banks and interest rate volatility.
Each iShares BuyWrite ETF seeks to track a designated index from Cboe Global Indices by owning shares of the underlying ETF and selling one-month call options at a strike price at or near the closing price of the ETF the day before the strategy writes the call options. Each month, the iShares BuyWrite ETFs will distribute to shareholders both the call option premiums collected and the underlying funds’ monthly distributions.
The three products are: iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW); Cboe TLT 2% OTM BuyWrite Index with a fee of 0.35 per cent.
iShares High Yield Corporate Bond BuyWrite Strategy ETF (HYGW); Cboe HYG BuyWrite Index with a fee of 0.69 per cent.
iShares Investment Grade Corporate Bond BuyWrite Strategy ETF (LQDW); Cboe LQD BuyWrite Index with a fee of 0.34 per cent.
“TLT, HYG and LQD have grown into important financial instruments in the fixed income markets and have some of the most liquid options markets of any ETF,” says Stephen Laipply, US Head of Bond ETFs at BlackRock. “Our buy-write exposures expand the functionalities of bond ETFs by unlocking a sophisticated use case with a potential to enhance income for investors in this volatile yield environment.”
BlackRock pioneered bond ETFs in 2002 with the launch of four products and this space has since grown 23 per cent annually into a USD1.7 trillion industry with more than 1,400 offerings. Over 20 years, bond ETFs have become fundamental to fixed income investing and BlackRock estimates they will reach USD5 trillion in AUM by the end of the decade.