iShares Plans Short-Dated 'LQD,' 'HYG' Riffs

July 22, 2013

iShares files for two short-dated versions of its successful corporate bond funds 'LQD' and 'HYG.'

iShares put two short-dated corporate bond ETFs into registration—a high-yield fund and an investment-grade fund—in an attempt to replicate two similar, but longer-dated corporate bond ETFs. The plan addresses growing investor appetite for shorter-duration debt at a time when the era of ultra-low yields looks like it might be on the verge of beginning to end.

The two funds are as follows:

  • iShares 0-5 Year High Yield Corporate Bond ETF
  • iShares 0-5 Year Investment Grade Corporate Bond ETF


The two proposed funds look like iShares’ two hugely popular corporate bonds funds—the $19 million iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) and the $15 billion iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG)—but the two ETFs now in registration cherry-pick the shorter half of each fund’s targeted holdings.

While iShares does market a short-dated credit fund, the nearly $11 billion iShares 1-3 Year Credit Bond ETF (NYSEArca: CSJ), rolling out two shorter-duration corporate bond funds will allow investors to more carefully calibrate corporate bond exposure to help minimize the possibility of capital losses should official interest rates and bond yields end up heading higher in the not-too-distant future.

The iShares 0-5 Year High Yield Corporate Bond ETF will hold U.S. dollar-denominated, high-yield corporate bonds with less than five years before maturity, tracking the Markit iBoxx USD Liquid High Yield 0-5 Index. The index only includes bonds with less than five years to maturity; additionally, a bond must also have at least $350 million face-value to be included in the index.

The iShares 0-5 Years Investment Grade Corporate Bond ETF will track the Markit iBoxx USD Liquid Investment Grade 0-5 Index, which holds investment-grade corporate bonds with at least $500 million face-value and no more than five years until maturity.

Each fund will track its underlying indexes using a passive investment approach, mimicking the market-value-weighted methodology of its underlying. No issuer will have more than a 3 percent allocation in either fund, and both funds will hold small- to large-cap companies.

iShares didn’t name tickers or prices for either fund. Comparatively, LQD—the investment-grade ETF, has an annual expense ratio of 0.15 percent, or $15 for each $10,000 invested, while HYG costs 0.50 percent, or $50 for each $10,000 invested.


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