BlackRock (NYSE: BLK) has expanded its line of iShares fixed-income exchange traded funds to include two more speculative-grade options that help bond investors target so-called fallen angels and the high-yield market sans energy exposure.
The iShares Fallen Angels USD Bond ETF (NasdaqGM: FALN) and iShares iBoxx $ High Yield ex Oil & Gas Corporate Bond ETF (NasdaqGM: HYXE) began trading today, according to a press release. FALN has a 0.35% expense ratio and HYXE has a 0.50% expense ratio.
“With interest rates at historic and persistent low levels, investors continue to search for yield in their fixed income portfolios,” Matthew Tucker, Head of iShares Americas Fixed Income Strategy at BlackRock, said in a statement.
Specifically, FALN tracks so-called fallen angel speculative-grade rated debt, or debt securities that were initially issued with an investment-grade rating but were later downgraded to junk territory.
Related: High Quality Junk Bond ETFs Limit Default Risk
Fallen angel issuers tend to be larger and more established than many other junk bond issuers. Furthermore, since these fallen angels were formerly on the cusp of investment-grade status, this group of junk bonds typically has a higher average credit quality than many other speculative-grade debt-related funds. FALN’s credit quality exposure includes BB-rated 65.1%, B-rated 29.8% and CCC-rated 1.1%.
The iShares fallen angel bond ETF will be competing with the more established VanEck Fallen Angel High Yield Bond ETF (NYSEArca: ANGL).
[related_stories]Additionally, the iShares iBoxx $ High Yield ex Oil & Gas Corporate Bond ETF will track a similar index as iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), except HYXE excludes oil and gas bonds, removing about 10% of the exposure of the parent iBoxx USD Liquid High Yield Index.
“This may be appealing to investors who are concerned about recent declines in oil prices and volatility in the energy sector,” according to BlackRock.
The speculative-grade debt market has experienced heightened volatility on growing concerns over the nascent shale oil industry’s ability to repay debt obligations after the plunge in energy prices. HYXE tries to remove the default risks by excluding exposure these indebted oil producers.
Related: U.S. Junk Bond Market, ETFs Are Enticing Foreign Interest
Moreover, BlackRock is slashing fees on the iShares 0-5 Year Investment Grade Corporate Bond ETF (NasdaqGM: SLQD) and iShares Convertible Bond ETF (BATS: ICVT). SLQD’s expense ratio was lowered to 0.08% from 0.15%, ICVT’s expense ratio was cut to 0.20% from 0.35%.
“These enhancements seek to meet the evolving needs of fixed income investors. With today’s announcement, we are providing investors with additional fixed income exposures at competitive prices,” Tucker added.
For more information on new fund products, visit our new ETFs category.