What You Need to Know
- BlackRock is the latest among a growing number of asset managers to bring to market a core bond fund this year.
- The iShares USD Bond Factor ETF uses a rules-based strategy to to choose assets and allocations.
- The ETF invests in investment-grade, high-yield, mortgage-backed and Treasury securities.
The proliferation of core bond funds this year, some indexed, some actively managed, continues, with the launch of BlackRock’s iShares USD Bond Factor ETF (USBF).
The core bond fund strives to outperform the broader fixed income market using a rules-based index strategy that allocates assets based on multiple factors.
First, there are the macro signals from the high-yield market about risk, then the macro factors of credit, real rates and finally the relative value and quality of the bonds.
The ETF invests in U.S.-based high-yield, investment-grade corporate and mortgage-backed bonds as well as U.S. Treasurys. It has an effective duration — a measure of sensitivity to interest rate changes — of 6.23 years, a weighted average maturity for its holdings of 7.24 years and a net expense ratio of 0.18%, which it says is lower than 86% of mutual funds and ETFs in the Morningstar Core Bond category.
What Your Peers Are Reading
Karen Schenone, Head of iShares US Fixed Income Strategy within BlackRock’s Global Fixed Income Group, said in a statement that the fund’s ability to adjust its holdings based on various risk-on and risk-off macroeconomic environments offers “opportunity to place a dynamic bond allocation at the core” of investors’ portfolios.