A More Diversified ETF Approach to the High-Yield, Junk Bond Market

BlackRock’s iShares expanded on its line of fixed-income ETFs with a new high-yield corporate bond offering that promises to provide a broader or more diverse exposure to junk-rated debt securities at a cheap cost.

On Thursday, BlackRock launched the iShares Broad USD High Yield Corporate Bond ETF (CboeBZX: USHY), which as a 0.22% expense ratio.

“Investors are increasingly looking for new ways to access bond markets through ETFs,” Steve Laipply, Head of U.S. iShares Fixed Income Strategy, said in a note. ”More recently, some investors have expressed interest in capturing even more high yield opportunities across credit quality, issuer size and industry, but it just was not available through an ETF until today. With USHY, investors with a longer term investment horizon can now access a large universe of high yield exposures.”

BlackRock’s iShares already offers the highly popular iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG). However, the new USHY includes exposure to over 1,850 securities from 990 different companies, or twice the amount of debt securities than HYG from 2.5 times as many issuers at an even lower cost of 0.22%, compared to HYG’s 0.49% annual fee.

“While we fully expect HYG will remain the vehicle of choice for professional traders and other investors, USHY is ushering in a new generation of bond ETFs that investors can also use in a variety of ways. As technology continues to drive product and market structure innovation, we can only expect this trend to accelerate. Accordingly, we believe that bond ETFs have the potential to reach $1.5 trillion in assets by 2022,” Laipply said.

The Broad USD High Yield Corporate Bond ETF is the first ETF to follow the widely monitored high yield benchmark index, the Bank of America Merrill Lynch US High Yield Constrained Index.