Though San Francisco-based iShares dominates the equity ETF
market, it is also looking to expand its offering into the fixed
income space as well.
Short-term bond funds have gained immense popularity over the past
couple of months in anticipation of rising interest rates should
the Fed start tapering. In order to make the most of the growing
demand for these funds, iShares launched
iShares Short Maturity Bond ETF (NEAR)
The new fund would provide investors' another option to play in the
fixed income space seeking broad exposure to the ultra-short term
bonds while protecting them from rising interest rates (read:
STPP: A Great Bond ETF For Rising Rates
). With this introduction, the firm's total bond ETFs line-up
NEAR in Focus
This new ETF is an actively managed fund that does not seek to
replicate the performance of a specified index. Instead, it looks
to maximize current income by investing 80% of the total assets in
U.S. investment-grade debt.
The product seeks to provide broad exposure across various fixed
income securities such as Treasuries, corporate bonds, asset-backed
debt and commercial mortgage-backed securities (see more in the
The effective duration of the fund is expected to be one year or
less while average maturity would be less than three years. The
product will charge investors a low fee of 25 basis points a year
for its diverse exposure.
How does it fit in a portfolio?
The new product appears an interesting choice for investors given
concerns over the rising interest rates and the resultant shift
toward the short-term fixed-income bonds. When rates eventually do
rise, the short duration securities will likely be less volatile
and less impacted than the long-term bond funds (read:
Coming Soon: Rising Rates ETF
Further, the fund is one of the cheapest options in the short-term
bond market ETF space.
Can it Succeed?
While there are only a few short-term bond funds, NEAR could face
stiff competition from the PIMCO Enhanced Short Maturity ETF (
). PIMCO uses an active approach and focuses in on short-duration
American securities that are ultra-safe (see:
all the Ultra-Short Term Bond ETFs here
The fund has effective duration of 1.01 years and average maturity
of 1.04 years. Additionally, the 30-day SEC yield stands at just
The PIMCO product has been successful this year so far, beating the
Total Return ETF (
in terms of AUM for the first time. MINT has become the largest
actively managed ETF with over $4.2 billion in its asset base. The
fund has an expense ratio of 0.35%.
Given the huge success of MINT, it would not be difficult for the
new iShares bond ETF to see big inflows and solid investor interest
given the thrust for the short-term bond funds amid interest rate
uncertainty. However, competition is certainly stiff, so this
space could definitely be one to watch in the months ahead, and
especially so if the current trend continues in the fixed
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PIMCO-TOT RETRN (BOND): ETF Research Reports
PIMCO-E SMETF (MINT): ETF Research Reports
ISHRS-ST MT BD (NEAR): ETF Research Reports
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