iShares, the world's largest ETF provider, today rolled out two
corporate bond funds that serve up narrowly focused exposure to
specific tiers of credit ratings, adding to its growing lineup of
ETFs listed on the Kansas City, Mo.-based BATS exchange.
The iShares Baa-Ba Corporate Bond Fund (BATS:QLTB) and the
iShares B-Ca Corporate Bond Fund (BATS:QLTC) each track a Barclays
benchmark that consists of fixed-rate, taxable corporate bonds that
meet a certain credit rating.
In the case of QLTB, only those credits with "Ba" or "Baa"
ratings that straddle the threshold of low-investment-grade and
junk bonds will be included in the portfolio. QTLC meanwhile
includes debt that's only in the speculative zone with ratings
ranging from "B" to "Ca."
The funds join the company's iShares Aaa-A Rated Corporate Bond
Fund (NYSEArca:QLTA)-a fund that teases out the most highly rated
corporate bonds in the market. The San Francisco-based ETF firm
launched QLTA in February.
QLTA costs 0.15 percent in annual expense ratio, while the
newcomers QLTB and QLTC have ERs of 0.30 percent and 0.55 percent,
iShares' ratings-focused exposure is a first for the bond space.
Still, the company is just one of many providers-such as Invesco
PowerShares and State Street Global Advisors-that have been racing
to open up new niches in the world of fixed-income ETFs,
particularly in some of the more illiquid parts of the corporate
The Nuts And Bolts
QLTB's portfolio of 147 bonds-just over a tenth of its index's
1,266 holdings-has an effective duration of 6.5 years and an
average yield to maturity of 4.35 percent.
The fund, which allocates most heavily to bonds from the
communications, consumer non-cyclical, energy and basic industry
sectors, has issues from companies like Deutsche Telekom
International, Kraft Foods, Citigroup and Altria Group among its
QLTC, meanwhile, also tracks its index through representative
sampling:It holds 111 bonds while its index has some 391
The bulk of the portfolio's bonds are in the 5- to
10-year-to-maturity range, but the fund has an effective duration
of 4.4 years and an average yield to maturity of 8.33 percent,
according to iShares data on its website.
In the last year, the Barclays indexes underlying QLTB and QLTC
returned 9.8 percent and 6.1 percent, respectively. For comparison,
the S&P 500 saw returns of 8.5 percent in the same period.
QLTC allocates 21 percent to the communications sector, with
consumer-cyclical and non-cyclical bonds representing a combined 26
percent of the basket.
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