The world’s biggest ETF firm hopes to gain a foothold in the world of bond funds that behave like individual bonds.
iShares, the world’s biggest ETF company, today rolled out another four target-date maturity corporate bond funds, this quartet giving diversified access to the full universe of available U.S. investment-grade credits, while the four funds it rolled out this spring excluded debt from financial firms.
The latest quartet features the same four expiration years as the first four launched this year in April: 2016, 2018, 2020 and 2023. This amounts to an attempt by iShares to isolate the most well-traveled maturity periods along the corporate credit yield curve; namely, three years, five years, seven years and 10 years.
Today’s rollout is the latest sign that San Francisco-based iShares continues to have faith that the relatively new realm of target-date maturity bond funds may be a promising pocket of the fund universe in coming years. The target-maturity corporate-bond space is now dominated by Lisle, Ill.-based Guggenheim and its “BulletShares” ETFs. But iShares was the first to test the target date maturity waters with a family of muni funds, though it appears that corporate debt market is more prospective than munis.
Such funds are basically like an individual bond—they mature or expire at par value, and investors could ladder them as they do individual bonds, giving investors a clear mechanism to manage interest-rate risk as rates head higher in the coming years. Principal that matures could be reinvested in a similar diversified bond portfolio that will presumably have a higher “coupon,” or at least the equivalent of a coupon.
The first four iShares target-date maturity bond funds launched have gathered about $200 million since they rolled out, and Guggenheim now has a total of about $2 billion in two lineups of target-date maturity corporate bond funds—one focused on investment-grade debt and the other on high-yield debt.
What could be crucial over the longer term is that iShares has priced its funds at 0.10 percent, or $10 per $10,000 invested, compared with 0.24 percent for the Guggenheim investment-grade corporate debt funds. Guggenheim’s high-yield corporate-debt target-date funds are priced at 0.42 percent—hardly a surprise, as the corporate junk bond market isn’t as liquid as the investment-grade market.
The new iShares funds, each of which expires in March of the year in each’s name, and links to the respective prospectuses are as follows:
- iSharesBond 2016 Corporate Term ETF (NYSEArca: IBDA)
- iSharesBond 2018 Corporate Term ETF (NYSEArca: IBDB)
- iSharesBond 2020 Corporate Term ETF (NYSEArca: IBDC)
- iSharesBond 2023 Corporate Term ETF (NYSEArca: IBDD)
The existing ex-financials funds, and their current assets, are as follows:
- iSharesBond 2016 Corporate ex-Financials Term ETF (NYSEArca: IBCB), $20 million
- iSharesBond 2018 Corporate ex-Financials Term ETF (NYSEArca: IBCC), $120 million
- iSharesBond 2020 Corporate ex-Financials Term ETF (NYSEArca: IBCD), $47 million
- iSharesBond 2023 Corporate ex-Financials Term ETF (NYSEArca: IBCE), $36 million