BlackRock has introduced three new innovative ETFs in the US which are the first to deliver buy-write option strategies on fixed income securities.
Carolyn Weinberg, Global Head of Product for ETF and Index Investments at BlackRock.
A buy-write is an options trading strategy that involves buying a security and simultaneously writing (selling) a call option on that security to generate enhanced income from the option premium.
The three new ETFs apply the buy-write approach to the fixed income markets of long-duration US Treasuries, USD investment-grade corporate bonds, and USD high yield corporate bonds.
Listed on Cboe BZX Exchange, the funds are the iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW US), which comes with an expense ratio of 0.35%; the iShares Investment Grade Corporate Bond BuyWrite Strategy ETF (LQDW US), which has an expense ratio of 0.34%; and the iShares High Yield Corporate Bond BuyWrite Strategy ETF (HYGW US), which costs 0.69%.
Fixed income investors are navigating a challenging market environment in 2022 characterized by decades-high inflation, hawkish central banks, and increased interest rate volatility. BlackRock’s latest ETFs offer investors a new set of tools to manage their fixed income exposure and will particularly appeal to those who, while bullish on the underlying fixed income segments, believe that their market values will not increase significantly over the life of the call options.
Carolyn Weinberg, Global Head of Product for ETF and Index Investments at BlackRock, commented: “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.”
Stephen Laipply, US Head of Bond ETFs at BlackRock, added: “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.”
Methodology
The three funds track indices developed by Cboe Global Indices that include long positions in seasoned BlackRock ETFs which are amongst the largest globally for their target markets.
The underlying ETFs are the $25.5 billion iShares 20+ Year Treasury Bond ETF (TLT US), the $36.5bn iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD US), and the $13.8bn iShares iBoxx $ High Yield Corporate Bond ETF (HYG US).
The indices also include periodic selling of one-month call options at a strike price at or near the closing price of the underlying ETF the day before the strategy writes the call options.