An ETF Where Risks Are Being Taken to Generate Yield

By Todd Rosenbluth, CFRA

The CFRA Focus ETF for August is iShares Core 1-5 Year USD Bond ETF (ISTB). In ranking 240 bond ETFs, CFRA combines holding-level attributes, designed to highlight where risks are being taken to generate yield, with ETF-specific metrics such as expense ratio and liquidity. ISTB earns a top ranking taking these factors into account.

iShares launched the first four bond ETFs 15 years ago and since then the current division of BlackRock, (which bought iShares in 2009) has significantly expanded its lineup to include a range of investment styles. CFRA currently ranks 76 iShares bond ETFs. But unlike other research providers that focus strictly on a three-year record, we focus on the risk/rewards of each ETFs holdings and the costs related to investing in the product.

ISTB tracks a Bloomberg Barclays short-term bond index that has a mix of government, corporate and agency bonds. From a credit perspective, more than 90% of assets are in investment-grade issues, but there are small stakes in BB and B rated securities. In the investment-grade rating categories, ISTB is diversified between higher investment-grade bonds (65% are rated AA or higher) and lower investment-grade bonds (24% in A or BBB).

Within the corporate portion (35% of assets), bonds issued by Ford Motor, Morgan Stanley and Verizon Communications can be found inside. Meanwhile, Federal Home Loan Mortgage Corp and Fannie Mae are among the larger issuers providing agency exposure.