ETF Watch: iShares Plans ‘Enhanced’ Bond Funds

BlackRock’s iShares unit files for two alternatively weighted fixed-income ETFs.

Two recent filings from BlackRock’s iShares unit outline the firm’s plan to launch two alternatively weighted fixed-income ETFs. The iShares Edge High Yield Defensive Bond ETF and iShares Edge Investment Grade Enhanced Bond ETF will both weight their components based on a proprietary optimization methodology designed to maximize risk-adjusted returns. Both will target securities denominated in U.S. dollars and cap the weighting of individual issuers at 2%.

The investment-grade fund will focus on investment-grade securities with at least $250 million in par amount outstanding and at least a year to maturity. Meanwhile, the high-yield fund’s index will cover below-investment-grade securities with a par amount outstanding of at least $500 million and at least one year of remaining maturity. The optimization process for this fund has an additional feature that is designed to screen out the bonds that are most likely to default.

Although both funds will track BlackRock-branded indexes rather than iBoxx benchmarks, the proposed ETFs seem like counterparts to the well-known iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) with alternative weighting approaches. The “Edge” brand, which is used on iShares’ multifactor equity ETFs, indicates the funds are not intended to be plain-vanilla products.

The filings did not include tickers, expense ratios or a listing exchange.

Contact Heather Bell at [email protected].