iShares has launched two new fixed income ETFs, the iShares $ Intermediate Credit Bond UCITS ETF (LON: ICBU), which gives exposure to dollar-denominated, investment grade corporate and government-related debt, and the iShares $ TIPS 0-5 UCITS ETF USD (LON: TIP5), which gives exposure to inflation-protected US government bonds.
BlackRock launches two new iShares bond ETFs.
ICBU tracks the performance of the Bloomberg Barclays US Intermediate Credit Bond Index, a reference for US dollar-denominated investment grade bonds with maturities between one and ten years. Financials dominate the index with 44% of the total weight, while energy (8%) and health care (8%) make up the next two largest sectors.
The index covers a range of investment grade corporate, sovereign, supranational, local authority and non-US agency bonds. The US is the largest geographic region represented in the index with 64%, followed by supranational (8%) and Canada (4%).
ICBU is physically replicated using a sampled methodology. It offers investors income generation potential relative to US treasuries with similar maturities. The fund has a TER of 0.15% and, as of 9 May, has $41m in assets under management.
TIP5 tracks the performance of the ICE US Treasury Inflation Linked Bond Index 0-5 Years, a reference for US treasury inflation-protected bonds with maturities between zero and five years with a minimum volume of $300 million in outstanding securities.
TIPS securities differ from regular Treasury securities in that the principal amount of a TIPS issue is adjusted over time to reflect changes in the underlying Consumer Price Index. TIPS pay interest twice a year at a fixed rate. Although the coupon rate for the TIPS issue is fixed throughout its life, it is applied to a principal amount which varies accordingly over time in response to the rate of inflation or deflation. As such, increases in inflation correspond to increased principal and coupon payments, thereby providing a degree of inflation risk mitigation within an investor’s portfolio. Investors should note however that decreases in inflation would lower the dollar value of coupon and principal payments.
The ETF is physically replicated using a sampled methodology. It distributes income semi-annually and has a TER of 0.10%. As of 9 May, the fund has $7m in assets under management. TIP5 is also listed on the London Stock Exchange in GBP (Ticker: TP05).
The funds will be looking to capture a slice of the growing global demand for bond ETFs – the global bond ETF industry achieved its best quarter on record with $44.5bn inflows in Q1 2017 – as investors increasingly turn to the ETF vehicle for its low costs and diversification benefits. The funds have also been rolled out on Deutsche Borse‘s Xetra and Frankfurt exchanges.