BlackRock’s (NYSE: BLK) iShares unit, the world’s largest issuer of exchange traded funds, expanded its iShares iBonds lineup of fixed income exchange traded funds Thursday with the launch of seven defined maturity funds.
The new ETFs are the iShares iBond Dec 2017 Corporate ETF (NYSEArca: IBDJ), iShares iBond Dec 2019 Corporate ETF (NYSEArca: IBDK), ishares iBond Dec 2021 Corporate ETF (NYSEArca: IBDM), iShares iBond Dec 2022 Corporate ETF (NYSEArca: IBDN), iShares iBond Dec 2023 Corporate ETF (NYSEArca: IBDO), iShares iBond Dec 2024 Corporate ETF (NYSEArca: IBDP) and the iShares iBond Dec 2025 Corporate ETF (NYSEArca: IBDQ).
Each of the new ETFs charges just 0.1% per year.
For investors who are concerned about rising rates, the interest rate sensitivity of the iBonds Corporate Term ETFs will decline through time as the funds approach maturity. If iBonds are held until maturity, investors can expect to experience a yield that is similar to the yield to maturity of the underlying bonds held in the ETF, according to a statement issued by iShares.
Target-maturity ETFs only hold bonds that mature in a set year and distributes cash back to investors upon maturity. With target-maturity bond ETFs, investors can implement a type of bond ladder strategy that has evenly spaced out maturity dates to help minimize interest rate risk. Essentially, target-date bonds appeal to buy-and-hold investors who want a steady stream of income without the risk of losing their initial principal. http://www.etftrends.com/2014/04/target-date-bond-etfs-reduce-rate-risk/
Larger bond ETFs typically hold a basket of bond securities with varying maturities and re-allocates once a bond matures. Many ETFs come with an effective or average duration that measures the fund’s sensitivity to changes in interest rates. For example, if a hypothetical ETF has a 3 year effective duration, the fund would see its price dip 3% if interest rates were to rise 1%.
The iBonds suite now includes 14 corporate, four corporate ex-financials, and six muni term maturity ETFs, according to the iShares statement.
Each iBond ETF holds a portfolio of bonds that mature in a specified year, so you can use them to target and manage interest rate risk as you would with a portfolio of individual bonds, according to iShares.
ETF Trends editorial team contributed to this post.