BlackRock has introduced two new fixed income ETFs in Australia providing exposure to the local corporate bond market.
Christian Obrist, Head of iShares, Australasia.
The iShares Core Corporate Bond ETF (ICOR AU) and iShares Yield Plus ETF (IYLD AU) have listed on the Australian Securities Exchange with management fees of 0.15% and 0.12% respectively.
The funds are linked to Bloomberg indices that focus on bonds from Australian corporate issuers with investment-grade credit ratings.
Bonds from government-related corporate entities are also eligible for inclusion.
Overlaying the index methodologies, BlackRock incorporates ESG screening to avoid companies involved in controversial weapons, fossil fuels, tobacco, civilian firearms, and UN compact violators.
The iShares Core Corporate Bond ETF tracks the Bloomberg AusBond Credit 0+ Yr Index which provides broad market-value-weighted exposure to Australian corporate bonds from across the yield curve.
The index is yielding 1.57% and has an effective duration of 3.9 years. Exposure is approximately equally distributed between AAA (22.8%), AA (23.4%), A (29.4%), and BBB (24.3%) credit buckets.
Income from the fund is distributed to investors on a quarterly basis.
The iShares Yield Plus ETF targets a 0.75% to 1.0% yield margin over the RBA cash rate by tracking the Bloomberg AusBond Credit and FRN Ex Big 4 Banks Index.
The index offers a shorter-duration benchmark by targeting exposure to bonds with remaining maturities under five years. Additionally, in a bid to reduce concentration risk, the methodology excludes Australia’s four major banks – Commonwealth Bank of Australia, Westpac Banking Corporation, Australia and New Zealand Banking Group, and National Australia Bank.
The index is yielding 1.44% and has an effective duration of 1.1 years. A-rated bonds make up the largest credit exposure at 41.3%, followed by bonds rated AA (22.2%), BBB (21.9%), and AAA (14.6%).
Income is distributed to investors monthly.
Christian Obrist, Head of iShares, Australasia, commented, “During periods of heightened market volatility, we have seen Australian investors deepen their usage of fixed income ETFs as key building blocks to construct resilient portfolios, whether it is for income generation, capital preservation, or as diversification from equities.
“We’re excited to add iShares Yield Plus ETF and iShares Core Corporate Bond ETF to our existing fixed income ETF suite, particularly in the current backdrop of ultra-low interest rates and reduced equity dividends. We believe investors are set to benefit from the broadening of cost-effective, liquid investment choices in our ETF product range as the two funds aim to meet investors’ demand for diversified sources of income.”