BlackRock expands suite of iShares target-maturity bond ETFs

Mar 23rd, 2018 | By | Category: Fixed Income

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BlackRock has rolled out a new target-maturity fixed-income ETF in the US – the iShares iBonds Dec 2024 Term Muni Bond ETF (IBMM US).

iShares launches new target-maturity bond ETF

BlackRock has launched a new target-maturity bond ETF on Cboe Global Markets.

Unlike the majority of fixed income ETFs, which trade in and out of bonds to maintain a target duration exposure, target-maturity ETFs hold underlying bonds until maturity, at which point the fund liquidates.

BlackRock currently offers 21 target-maturity funds: seven tracking the municipal bond market with target dates between 2018-2023, and 14 targeting the investment-grade corporate bond market from 2018-2027.

By combining funds of varying maturities, investors can build a portfolio that meets their specific future cash requirements. Furthermore, diversification benefits from holding several bonds in the fund mitigate the idiosyncratic risks investors face when investing in a single bond; these include event risk such as credit rating downgrades or default.

The new ETF tracks an index composed of investment-grade US municipal bonds maturing between 1 January 2024 and 2 December 2024. It has been listed on Cboe Global Markets and has an expense ratio of 18 bps.

If the fund is held to maturity, the full value of the principal will be returned to investors (assuming no impairment). This differs to other fixed-income ETFs where the value of the principal will be at risk if interest rates rise and bonds are sold prior to maturity.

The firm is one of only two firms to offer target maturity bond ETFs in the US, the other being Invesco-owned Guggenheim ETFs, which offers its target maturity bond funds under the BulletShares brand. 

BlackRock’s target-maturity ETFs have attracted reasonable interest, and range in size from $40 million to $640m. Assets in the category total over $5 billion.

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