Today, iShares has launched an ETF that offers exposure to the highest tiers of the junk bond space. The iShares BB Rated Corporate Bond ETF (HYBB) tracks the ICE Bank of America BB US High Yield Constrained Index.
It comes with an expense ratio of 0.25% and lists on the NYSE Arca.
The fund’s underlying index is market capitalization weighted, with individual components capped at a weight of 2%. It covers BB+ through BB-rated securities denominated in U.S. dollars that have at least a year of remaining maturity and $250 million outstanding, the prospectus says.
“It has a more attractive risk-adusted return when you compare it to other parts of the high-yield market, whether that’s other credit slices or the overall market as a whole,” said Josh Penzner, head of iShares institutional fixed income, in reference to the BB section of the high-yield space.
He points out that BB-rated bonds are a growing part of the junk bond market, largely due to an increase in downgrades, including such names as Ford and Heinz. BB-rated bonds now represent more than half of the high-yield bond universe, he says.
“There is a strategic element to it, when you look at it from a historic risk/return perspective, when you think about a world that’s starved for income, particularly if you’re an insurance company or pension fund, and trying to get higher-quality income,” Penzner added, noting that there is also a tactical allocation use case for the fund as well.
“It gives investors the opportunity to create the more refined exposure that they might want to own to build resilience or to build income into the portfolio,” he said.
Contact Heather Bell at [email protected]