Many investors in or near retirement look to boost their portfolios’ exposure to fixed income assets and a smart way of accomplishing that objective is with low-cost exchange traded funds, such as the iShares Core Total USD Bond Market ETF (NASDAQ: IUSB).
The iShares Core Total USD Bond Market ETF, which is nearly five years old and has $2.91 billion in assets under management, tracks the Bloomberg Barclays U.S. Universal Index and holds over 7,500 bonds.
About 61% of IUSB’s holdings are rated AAA and the ETF features little exposure to bonds with non-investment grade ratings. Over 56% of the fund’s holdings are Treasuries or mortgage-backed-securities (MBS). As an aggregate bond fund, IUSB can allocate to some credit opportunities, potentially bolstering the fund’s income profile and total returns.
IUSB “is interesting in that it’s kind of an aggregate-plus type approach to building a bond portfolio,” said Morningstar. “So, The Agg tracks investment-grade credits exclusively. The universal index, which is a cousin index, adds an increment of sub-investment-grade credit. So, there’s some junk bonds in the mix, there’s some dollar-denominated emerging-markets bonds in the mix.”
Inside IUSB ETF
Just under 15.70% of IUSB’s holdings are rated BBB and a small percentage are rated below that so while the fund features some high-yield exposure, is not a significant percentage of the overall portfolio.
“And what you see is, by virtue of adding that increment of credit, it better reflects kind of the waters that active managers in the Morningstar intermediate-term bond category are fishing in and becomes a higher hurdle for them,” according to Morningstar.
IUSB has a 30-day SEC yield of 3.25% and an effective duration of 5.48 years. The weighted average maturity of the fund’s components is 7.74 years.
“So, it’s tough to beat indexing in most corners of the market, especially if the index is more representative of what you can actually invest in, and what I would argue is that the index underpinning IUSB better reflects the opportunity set available to active managers and thus is a higher hurdle for them to beat over the long term,” said Morningstar.
IUSB charges just 0.06% per year, or $6 on a $10,000 investment. Morningstar has a Silver rating on the fund.
For more on core investing strategies, visit our Core ETF Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.