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Portfolio > ETFs > Bond

BlackRock Introduces Buy-Write Bond ETF Suite

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BlackRock today introduced what it calls the industry’s first buy-write bond ETFs, a product suite aimed at boosting yield potential during a difficult fixed income environment.

The three iShares BuyWrite ETFs — iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (Cboe: TLTW), iShares High Yield Corporate Bond BuyWrite Strategy ETF (Cboe: HYGW) and the iShares Investment Grade Corporate Bond BuyWrite Strategy ETF (Cboe: LQDW) — provide access to buy-write strategies on baskets of fixed income securities, BlackRock said.

Net expense ratios for the funds are 0.35% for TLTW, 0.69% for HYGW and 0.34% for LQDW.

In general, investors using a buy-write strategy purchase an underlying security while also writing a call option on it, generating income from selling the option.

Each new BlackRock ETF packages two potential income sources into one ticker — premiums generated by selling monthly call options on the underlying ETFs (TLTHYG and LQD) and the yields from each of the underlying ETFs themselves, according to the firm.

“The iShares’ bond ETF platform has the world’s largest, comprehensive toolkit for individuals and institutions by providing access to the $124 trillion fixed income market with essential building blocks for a wide variety of macroeconomic climates,” said Carolyn Weinberg, global head of product for ETF and index investments at BlackRock.

“Market participants have used a buy-write strategy on equities since options were first listed more than 50 years ago. The iShares Bond BuyWrite ETFs introduce these capabilities to fixed income, pioneering new possibilities for an asset class sitting at the center of so many long-term portfolios,” she said.

Each new ETF seeks to track a designated index from Cboe Global Indices by owning shares of the underlying ETF and selling one-month call options at a strike price at or near the ETF’s closing price for the previous day.

Each month, the iShares BuyWrite ETFs will distribute to shareholders both the call option premiums collected and the underlying funds’ monthly distributions.

 “TLT, HYG and LQD have grown into important financial instruments in the fixed income markets and have some of the most liquid options markets of any ETF,” said Stephen Laipply, U.S. head of bond ETFs at BlackRock. “Our buy-write exposures expand the functionalities of bond ETFs by unlocking a sophisticated use case with a potential to enhance income for investors in this volatile yield environment.”

BlackRock noted it’s introducing the buy-write ETFs during the most challenging time for fixed income markets in decades.


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