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A Silver Bullet: Corporate Bond ETFs Dressed Up to Look Like Bonds

By Jason Kephart

 

BlackRock Inc.’s exchange-traded fund arm, iShares, plans to launch a series of corporate bond ETFs that look and act like individual bonds.

The proposed series of iShares Corporate Bond Funds will be a set of target-date ETFs, each holding a basket of investment-grade bonds set to expire in their given year. The San Francisco-based ETF provider already offers a similar suite of products that hold municipal bonds.

Fixed-income ETFs have been in high demand for the past two years as investors look for more targeted and liquid access to bond markets. Bond ETFs had $39 billion of inflows through the end of September, the most of any asset class, according to Morningstar Inc. That puts them on pace to beat last year’s record inflows of $43 billion, which were more than double those in 2010.

Even with the sudden popularity, bond ETFs have a long way to go to catch up with their equity siblings, which hold more than $900 billion.

Mark Wiedman, global head of iShares, said he thinks target-date bond ETFs are one of the ways bond ETFs are going to catch up to equities, as they’re more like what the typical bond investor is familiar with.

Mr. Wiedman explained that some traditional fixed-income investors aren’t fully on board with bond ETFs because they don’t know enough about them yet. Others are put off by the fact that the funds come with a ticker symbol and trade intraday, making them resemble a stock rather than a bond.

“Fixed-income people don’t get ETFs,” he said at last month’s Morningstar ETF Invest Conference in Chicago. “We need to make them look more like a bond.” Continue reading