New iShares core offerings delve into new and worthwhile index exposures.
This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article features Clayton Fresk, CFA, portfolio management analyst at Georgia-based Stadion Money Management.
As previously noted on ETF.com, iShares recently announced it was expanding its family of “Core” ETFs. This included an expense ratio reduction on a handful of existing funds plus the addition of four new funds, three on the equity side and one on the fixed-income side.
What I really want to get into is that iShares changed the index on two of the existing fixed-income funds. These changes have allowed investors access to exposure previously not available in ETF form. I’ll highlight the changes and additions and how they differ from existing ETF offerings.
The “Core” offering, including the 10 new additions, now amounts to 20 funds covering large swaths of the U.S. and international equities and fixed-income markets.
For my purposes now, I want to take about five of the 10 new additions to the Core franchise—four in detail in terms of the innovation on the indexing methodologies that truly represent new territory for investors. Three of those are bond funds and the fourth is a dividend-focused equities fund.
On the fixed-income side, iShares has added the iShares Core Total USD Bond Market ETF (IUSB), which tracks the Barclays U.S. Universal Index. iShares has also changed the index on two other fixed-income funds to tracks subcomponents of the Universal index:
- iShares Core Short Term USD Bond (ISTB) – now tracks the U.S. Universal 1-5 Year index
- iShares Core Long Term USD Bond ETF (ILTB) – now tracks the U.S. Universal 10+ Year index
There are numerous differences between the Universal indices and the more traditional Aggregate bond indices.
One difference is lifting the requirement of an investment-grade rating. As such, the Universal index will include corporate high-yield bonds. Additional index exposures outside the Aggregate Index also include emerging markets (USD-denominated) debt, eurodollar, 144A issuance and non-ERISA CMBS.
In essence, the Universal index is a more encompassing version of the Aggregate.
Overall, Aggregate index exposure makes up for a large percentage of the Universal index. According to Barclays, the Aggregate makes up 83 percent of the Universal index, with the next largest additional exposures being high yield at 6.6 percent and 144A at 6.2 percent.