BondBloxx unveils HY bond sector rotation ETF

Sep 20th, 2023 | By | Category: Fixed Income

BondBloxx Investment Management has introduced a new ETF that dynamically allocates among the firm’s suite of industry-specific high yield corporate bond ETFs.

Tony Kelly, co-Founder of BondBloxx Investment Management

Tony Kelly, co-Founder of BondBloxx Investment Management.

The BondBloxx USD High Yield Bond Sector Rotation ETF (HYSA US) has been listed on NYSE Arca with an expense ratio of 0.55%.

The US high yield corporate bond market has historically exhibited wide variations in returns across industry sectors with a range exceeding 13% between the best and worst-performing industry sectors over the past 25 years.

BondBloxx believes this variance in returns will continue, creating an opportunity to outperform broad high yield corporate bond benchmarks through a strategy that overweights and underweights specific sectors.

BondBloxx’s existing suite of industry-specific high yield corporate bond ETFs consists of seven funds targeting 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 ETF’s underlying 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.

Constituents are weighted by market value outstanding subject to a cap of 25% on any single issuer and a cumulative cap of 48% on all issuers with individual weights above 5%.

HYSA, meanwhile, is actively managed and sub-advised by Macquarie Asset Management, an investment firm with extensive experience in high yield bond research, trading, and portfolio management.

Macquarie makes asset allocation recommendations for HYSA based on a fundamental investment approach that takes into consideration the analysis of macroeconomic, financial, and market data. HYSA’s prospectus notes that the fund may not be invested across all seven underlying ETFs at any specific time. Rebalancing typically occurs on a monthly basis but may be more frequent if deemed necessary.

As of 19 September, the ETF’s sector allocations were led by industrials (26.0%), telecom, media & technology (18.4%), and consumer cyclicals (15.9%), followed by energy (13.5%), consumer non-cyclicals (12.0%), financials & REITs (8.0%), and healthcare (6.0%).

The fund was exhibiting a yield-to-worst of 8.42% with a spread duration of 3.49 years.

Tony Kelly, co-Founder of BondBloxx Investment Management, said: “We’re excited to expand the fixed income investor toolkit by providing a high yield sector rotation strategy with the transparency, liquidity, and cost efficiency of an ETF. Investors now have the flexibility to implement a high yield sector rotation strategy in one trade, alongside the ability to execute precise views with BondBloxx’s existing sector-specific high yield bond ETFs.

“This is another example of BondBloxx’s mission to use the ETF technology to offer more choice for fixed income investors, including those seeking active strategies.”

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