BondBloxx unveils precision credit ETFs

May 27th, 2022 | By | Category: Fixed Income

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Fixed income ETF specialist BondBloxx Investment Management has introduced its second product suite, a trio of funds targeting specific credit buckets within the USD high yield corporate bond universe.

Tony Kelly, co-Founder of BondBloxx Investment Management

Tony Kelly, co-Founder of BondBloxx Investment Management.

The BondBloxx BB Rated USD High Yield Corporate Bond ETF (XBB US) invests in bonds rated BB1 through BB3 which are described as “non-investment grade speculative” and are at the higher-quality end of the high yield spectrum.

The BondBloxx B Rated USD High Yield Corporate Bond ETF (XB US), meanwhile, focuses on bonds rated B1 through B3 which are described as “highly speculative” and are located on the next rungs below BB.

Finally, the BondBloxx CCC Rated USD High Yield Corporate Bond ETF (XCCC US) targets the lowest-rated bonds amongst the three funds, those rated CCC1 through CCC3 and described as containing “substantial risks”.

XBB, XB, and XCCC have been listed on NYSE Arca with expense ratios of 0.20%, 0.30%, and 0.40%, respectively.

Each ETF gains its exposure by tracking a credit ratings-specific sub-index of the ICE BofA US Cash Pay High Yield Constrained Index. Each sub-index uses the average credit ratings of the three main credit rating providers to determine a bond’s inclusion.

The three new BondBloxx products add to seven sector-specific high yield ETFs that the firm debuted earlier this year.

Both suites of ETFs have launched at a challenging time for high yield investors amid rising macroeconomic and geopolitical risks and the start of what is expected to be an aggressive tightening cycle by the Federal Reserve to combat soaring inflation.

The $14 billion iShares iBoxx $ High Yield Corporate Bond ETF (HYG US), the largest broad market high yield ETF, has slumped 10.5% year-to-date (as of 24 May) while recording net outflows of $4.5bn over the same period. The fund has, however, seen a bumper net inflow of $1.7bn so far this month, reversing four months of steep outflows and signaling that investors may be willing to add more risk to their portfolios.

BondBloxx argues, however, that current volatility is exactly what the ETFs are designed for as the precise exposures offered by the funds may better help investors navigate challenging market conditions.

Tony Kelly, co-Founder of BondBloxx Investment Management, said: “We founded BondBloxx to provide modern tools for modern markets. Our targeted products make it possible for investors to finally execute sophisticated investment views through ETFs which are a time-honored tool to access liquidity and efficient exposure, especially in today’s volatile markets.”

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