iShares launches yield-optimized diversified US bond ETF

May 7th, 2014 | By | Category: Fixed Income

iShares, the exchange-traded funds business of BlackRock, has expanded its suite of bond ETFs with the launch of the iShares Yield Optimized Bond ETF (BYLD).

iShares launches yield-optimized diversified US bond ETF

Matthew Tucker, Head of iShares Fixed Income Investment Strategy.

Listed on the NYSE Arca, the ETF offers investors access to a wide spectrum of US bonds via an ETF of ETFs-type structure.

The fund is linked to the Morningstar US Bond Market Yield-Optimized Index, a broadly diversified index that targets securities that seek to deliver a high level of current income while maintaining long-term capital appreciation.

The index, which is composed exclusively of iShares ETFs, targets various US fixed income categories, including Treasuries, TIPS and agency bonds, investment grade corporate or floating rate bonds, mortgage backed securities, and high yield debt.

In order to be included in the fund, the underlying iShares bond ETF must have at least 1 year history, assets greater than $100 million, and meet minimum liquidity criteria. Constituents are selected and assigned a weight according to a constrained mean variance optimization equation that creates an optimal yield-maximised portfolio based on the return, standard deviation, correlation, and yield of the eligible securities.

To maintain broad exposure and diversification, the index maintains a weight allocation at each rebalance of 0-50% US government and government related, 0-10% TIPS exposure, 0-50% US securitized, 0-50% US investment grade credit, 0-10% floating rate exposure, and 0-20% US non-investment grade credit. In addition, single security positions are capped at 30% and the maximum position for securities with AUM of less than $500 million is 10%.

Commenting on the launch, Matthew Tucker, Head of iShares Fixed Income Investment Strategy, said: “iShares Yield Optimized Bond ETF seeks to maximize yield while keeping risk in line with the broader U.S. bond market. The addition of BYLD to our suite of iShares bond ETFs provides investors with another tool to help mitigate risk within their bond portfolio.”

The fund has a net expense ratio of 0.28%.

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