New iShares ETF Targets BBB-Rated Bonds

The fund allows investors to specifically target the largest segment of the corporate bond universe.

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Reviewed by: Heather Bell
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Edited by: Heather Bell

Today, BlackRock’s iShares unit rolled out an ETF that isolates a specific segment of the investment-grade corporate bond space. The iShares BBB Rated Corporate Bond ETF (LQDB) covers a $4.3 trillion market.

The fund comes with an expense ratio of 0.15%,

It tracks the iBoxx USD Liquid Investment Grade BBB 0+ Index, which had more than 2,600 components as of the end of March. The index includes BBB-rated corporate bonds denominated in U.S. dollars, though they can be issued by domestic entities or by issuers from other developed markets, according to the prospectus, which also notes that consumer staples represented a significant portion of the portfolio.

“The number of BBB-rated U.S. corporate bonds outstanding has surged 257% since the end of 2009, and new issuance continues to be met with strong demand,” said Steve Laipply, the U.S. head of fixed income ETFs for iShares. He points out that for the last five years, BBB-rated bonds have outperformed the wider investment-grade bond space.

“We believe this segment of the investment-grade market will continue to be prominent in terms of new issuance, as many deals are still  being oversubscribed, and also attractive for investors as yields continue to remain at historically low levels.  We could also see more bonds entering the BBB space due to upgrades from high yield (“rising stars”) as the economy recovers,” Laipply added.

LQDB tracks an index that is basically a subset of the one underlying the $42 billion iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD).

Contact Heather Bell at [email protected]

 

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.