Crazy Eights

January 11, 2007

Finally, more fixed-income: iShares launches a major expansion of its fixed-income franchise.

The paucity of fixed-income exchange-traded funds (ETFs) in the United States has baffled industry observers for some time.  Despite representing a market nearly as large as equities, there have been just six fixed-income ETFs available to investors … until today.

Barclays Global Investors (BGI), the developers of the original six fixed-income funds, significantly expanded its bond ETF offerings with the launch of eight new funds onto the New York Stock Exchange (NYSE). 

The new funds are:

Fund

Ticker

ER

iShares Lehman Short Treasury Bond Fund

SHV

0.15%

iShares Lehman 3-7 Year Treasury Bond Fund

IEI

0.15%

iShares Lehman 10-20 Year Treasury Bond Fund

TLH

0.15%

iShares Lehman Credit Bond Fund

CFT

0.20%

iShares Lehman 1-3 Year Credit Bond Fund

CSJ

0.20%

iShares Lehman Intermediate Credit Bond Fund

CIU

0.20%

iShares Lehman Intermediate Government/Credit Bond Fund

GVI

0.20%

iShares Lehman Government/Credit Bond Fund

GBF

0.20%

The prospectus is available here.

It's nice to see the expense ratios on the funds stay low; the pricing is extremely competitive compared to other bond funds.

The prospectus includes a ninth fund, tied to the Lehman Brothers MBS Fixed-Rate Index, which measures the performance of GNMA, Fannie Mae and Freddie Mac mortgage debt; that fund is still under development.

Filling The Line-Up

The funds complement the existing iShares funds, and fill out BGI's offerings in the Treasury, Corporate and Mixed security markets. With the launches, BGI now offers funds covering the following maturities in the three different categories (new funds are in bold; unless noted, the funds track Lehman indexes).

Treasuries

Lehman Short: <1 year
Lehman 1-3 Year
Lehman 3-7 Year
Lehman 10-20 Years
Lehman 20+ Years

Corporate Credit

iBoxx $ Investment Grade (Broad-based)
Lehman 1-3 Year Credit
Lehman Intermediate Credit (>1 and <10)
Lehman Credit: >1 year

Combined

Lehman Aggregate (Broad-Based)
Lehman Intermediate Government/Credit Bond
Lehman Government/Credit Bond (>1 year)

The Lehman Aggregate differs from the Lehman Government/Credit funds in that the Aggregate includes mortgage-backed securities, while the Government/Credit includes only government and corporate debt.

The big hole in the line-up is municipal bonds; there continues to be a notable absence of a muni bond ETF.

There are other fixed-income ETFs under development: Ameristock, the developers of the U.S. Oil Fund (AMEX: USO), is working are five fixed-income Treasury bond funds tied to indexes from Ryan ALM; there is no word yet on when those funds will be launched.

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