ProShares has rolled out the first bond ETF that focuses solely on S&P 500 issuers to help investors gain exposure to some of the highest quality and most liquid corporate debt on the market.
On Thursday, ProShares launched the ProShares S&P 500 Bond ETF (NYSEArca: SPXB), which has a 0.15% expense ratio.
“The S&P 500® served as the basis for the first ETF over 25 years ago. Today’s launch of a bond ETF tied to the S&P 500 is another important moment in the evolution of ETFs,” Michael Sapir, co-founder and CEO of ProShare Advisors (the advisor to Proshares), said in a note. “We believe SPXB will be an attractive option to investors considering bond ETFs. SPXB offers the most liquid, high quality bonds issued by companies in the S&P 500, the widely known and most-used securities benchmark.”
The new ProShares S&P 500 Bond ETF tries to reflect the performance of the S&P 500/MarketAxess Investment Grade Corporate Bond Index, which consists exclusively of investment grade bonds issued by companies in the S&P 500, the most widely-used U.S. equity benchmark, according to a prospectus sheet.
“As more and more investors embrace ETFs for their bond portfolios, we believe their familiarity with the S&P 500 will ease the transition,” said Steve Cohen, ProShares managing director. “We are pleased to offer SPXB, the first ETF investing exclusively in the bonds of the iconic S&P 500.”
The smart beta indexing component is also incorporated in the screening process. From over 5,000 bonds issued by S&P 500 companies, the underlying index selects and weights up to 1,000 of the most liquid investment grade bonds based on a number of criteria.
Qualifying debt securities must be issued by S&P 500 companies, be rated investment grade, be issued in the United States and denominated in U.S. dollars, have a remaining maturity of greater than or equal to one year, have a maturity upon issuance of at least two and a half years, and have a minimum par amount of $750 million.
The index also implements a liquidity screen. The 1000 most liquid bonds are included in the Index. If less than 1000 bonds meet the above criteria, all qualifying bonds will be included and will consist of fewer than 1000 bonds.
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The underlying index is then weighted by market value where bond issuances with higher market values are more heavily weighted than bond issuances with lower market values.
“The S&P 500/MarketAxess Investment Grade Corporate Bond Index is a new way to measure the U.S. investment grade corporate bond market,” Jason Giordano, Director, Fixed Income Product Management at S&P Dow Jones Indices, said in a note. “The companies represented in the index, constituents from the iconic S&P 500, are typically well capitalized and their bonds historically trade more frequently than the broader U.S. corporate bond landscape. We are pleased to license the index to ProShares.”
Bond ETF flows are accelerating rapidly, but still represent a small portion of the overall marketplace. Fixed-income ETFs are 17% of the $3.5 trillion in ETF assets, according to ProShares. By comparison, bond mutual funds represent 24% of the overall $17 trillion mutual fund marketplace.
For more information on new fund products, visit our new ETFs category.