Investors remain underserved in bond ETFs so it is important to recognise product innovation that helps fund selectors navigate a new era of high interest rates.
Bending the rules slightly, my favourite ETF launch this year is not a single strategy but Europe’s first fixed maturity ETF range that BlackRock unveiled in August.
The nine-strong iBonds ETF range, which won ETF Launch Of The Year at ETF Stream's Awards this year, offers exposure to investment-grade corporate bonds and US Treasuries that have a defined individual maturity.
They are:
All corporate bond ETFs in the range track respective Bloomberg indices while IT25 tracks the ICE 2025 Maturity US Treasury UCITS index.
The suite is competitively priced, with all ETFs carrying total expense ratios (TERs) of 0.12%, except for IT25 which has a fee of 0.10%.
Why are they so useful?
The suite allows investors to pick specific points on the yield curve that give them the flexibility to match a client’s portfolio to their investment horizon.
With different maturities on offer, investors can create ‘bond ladders’, a strategy that incorporates a portfolio of fixed income securities with different maturities.
By buying bonds with differing maturity dates, investors can stagger final payouts, and reinvest into funds with subsequent consecutive maturities – creating bond ladders. However, the introduction of iBonds means can now be done through a few ETFs rather than numerous bonds.
This allows fund selectors to access fixed maturities via the ETF wrapper which also carries diversification, transparency and liquidity benefits versus investing in single bonds.
The range has resonated with European investors. Since launching in August, it has already gathered over $1.6bn assets under management (AUM).
The ETFs have been even longer in the US – since 2010 – and have grown to over $23.9bn AUM across 39 ‘live’ strategies, up from $1.8bn in 2015.
Highlighting the early success, DWS followed suit with the launch of four euro-denominated corporate bond ETFs in November with different fixed maturities ranging between September 2027 and 2033.
Final word
With fixed income UCITS ETFs capturing record inflows in 2023, it is clear there is an opportunity to provide greater choice to the market.
BlackRock’s fixed maturity ETF range has been one such innovation this year that expands fund selectors’ toolbox, giving them greater scope to build more precise portfolios.
Each year, the ETF Stream editorial team selects their favourite ETF launches of the past 12 months. For those interested, here are my previous picks:
