BondBloxx Investment Management, a newly minted fixed income ETF specialist, has launched its debut products.
Leland Clemons, co-Founder of BondBloxx.
Listed on NYSE Arca, the firm’s first fund suite consists of seven ETFs offering index-based exposure to high yield corporate bonds while diversifying and managing risk according to industry exposure.
Bondbloxx was founded by a team of ETF veterans from BlackRock, JP Morgan, State Street, Northern Trust, and HSBC that have been at the forefront of developing some of the largest ETFs available today.
Leland Clemons, one of the firm’s co-founders, said: “Until today, fixed income investors could not execute sector-specific views in high yield bonds through ETFs. We are excited to bring the ETF benefits of efficiency, transparency, and liquidity to fixed income investors with first-to-market products that enable what we believe is more precise portfolio construction.”
Each of the seven ETFs is linked to an industry-specific sub-index of the ICE BofA US Cash Pay High Yield Constrained Index. This parent index consists of US dollar-denominated, sub-investment grade corporate bonds that have more than 18 months remaining to maturity. Eligible issues must have been issued in the US market from issuers with more than $250 million notional outstanding.
The sub-indices are constructed by screening for issuers that derive more than 50% of their revenue or profit from the following seven industry groups: consumer cyclical, consumer non-cyclical, energy, financial & REIT, healthcare, industrial, and telecom media & technology.
Each index initially weights its constituents by market value outstanding before making adjustments to enhance diversification. This includes capping the weight of any single issuer at 25% and capping the combined weight of ‘large-cap’ issuers (defined as those with individual weights above 5%) at 48%.
The full suite of ETFs is outlined below. Each comes with an expense ratio of 0.35%.
BondBloxx US High Yield Consumer Cyclicals Sector (XHYC US)
BondBloxx US High Yield Consumer Non-Cyclicals Sector (XHYD US)
BondBloxx US High Yield Energy Sector (XHYE US)
BondBloxx US High Yield Financial and REIT Sector (XHYF US)
BondBloxx US High Yield Healthcare Sector (XHYH US)
BondBloxx US High Yield Industrial Sector ETF (XHYI US)
BondBloxx US High Yield Telecom Media & Technology Sector (XHYT US)
BondBloxx’s product debut comes amid an exodus from risky assets such as high yield bonds as investors respond to rising macroeconomic and geopolitical risks and expectations that the Federal Reserve may soon embark upon a series of aggressive interest rate increases to combat soaring inflation. The $16.5 billion iShares iBoxx $ High Yield Corporate Bond ETF (HYG US), the largest broad market high yield ETF, has recorded more than $6.5bn net outflows over the past year including more than $2.5bn in January and February month-to-date.
How this will affect demand for BondBloxx’s initial product suite, however, remains to be seen. Many risk-seeking investors are likely to be drawn to the ETFs as their precise exposures could offer better navigation for these challenging market conditions.