BlackRock has launched a new suite of target-maturity iBonds ETFs in the US providing exposure to portfolios of US Treasury Inflation-Protected Securities (TIPS) maturing in a given year.
The new suite of iBonds ETFs has debuted at a time of stubbornly high inflation in the US.
Unlike the majority of fixed income ETFs, which hold bonds for a limited period of time to maintain a specific maturity exposure, BlackRock’s iBonds ETFs hold underlying bonds until maturity at which point the fund liquidates.
The funds offer a regular income as well as a cash distribution at termination, thereby acting like individual bonds.
Investors further benefit from increased liquidity due to the ETF structure.
Designed to mature like a bond, trade like a stock, and diversify like a fund, iBonds ETFs make bond laddering simpler with only a few ETFs rather than researching and purchasing numerous individual bonds.
The new TIPS iBonds ETF suite consists of ten funds that invest in US TIPS with maturities ranging from 2024 to 2033.
TIPS differ from regular US Treasury bonds in that the principal amount of a TIPS issue is adjusted over time to reflect changes in the underlying Consumer Price Index. When they mature, the Treasury pays the original or adjusted principal, whichever is greater.
TIPS are designed to offer a real rate of return and, hence, provide a degree of protection against rising inflation. In an environment of elevated inflationary pressures, TIPS can play a role in helping to inflation-proof portfolios and deliver a real yield over and above inflation rates.
The new suite of iBonds ETFs has debuted at a time of stubbornly high inflation in the US with the US Consumer Price Index increasing 3.7% year-over-year in August, according to data from the Bureau of Labor Statistics.
Economists have voiced their concerns regarding the Federal Reserve’s ability to bring inflation down further without causing long-term harm to the US economy – as widely expected, the Fed decided to hold rates steady this week at a 22-year high of 5.25% to 5.5% despite inflation remaining above its stated target of 2%.
Commenting on the suite’s introduction, Karen Veraa, Head of US iShares Fixed Income Strategy at BlackRock, said: “The TIPS iBonds ETF suite provides advisors a new way to navigate this higher for longer rate environment while simultaneously providing investors a way to manage inflation risk and access yield.”
The ten new ETFs have launched on NYSE Arca, each with an expense ratio of 0.10%. They are:
iShares iBonds Oct 2024 Term TIPS ETF (IBIA US)
iShares iBonds Oct 2025 Term TIPS ETF (IBIB US)
iShares iBonds Oct 2026 Term TIPS ETF (IBIC US)
iShares iBonds Oct 2027 Term TIPS ETF (IBID US)
iShares iBonds Oct 2028 Term TIPS ETF (IBIE US)
iShares iBonds Oct 2029 Term TIPS ETF (IBIF US)
iShares iBonds Oct 2030 Term TIPS ETF (IBIG US)
iShares iBonds Oct 2031 Term TIPS ETF (IBIH US)
iShares iBonds Oct 2032 Term TIPS ETF (IBII US)
iShares iBonds Oct 2033 Term TIPS ETF (IBIJ US)
Having debuted its first iBonds ETFs in 2010, BlackRock now offers an extensive iBonds franchise with $23 billion in total assets under management across several asset classes including US Treasuries, municipal bonds, investment-grade corporate, high yield, and TIPS. Since the inception of iBonds, BlackRock has launched 77 iBonds ETFs with 47 still active.
Invesco is the other major provider to offer target-maturity ETFs which the firm brands BulletShares. Its range includes funds covering municipal bonds, investment-grade corporates, and high-yield corporates.