iShares Launches Target-Date Corporate Bond ETFs To Hedge Rising Rates

by: Tom Lydon

As a response to the historical low yields and the threat of rising interest rates, BlackRock's iShares exchange traded fund arm has launched four defined-maturity-date corporate bond funds to help investors build a laddered fixed-income portfolio.

According to a press release, the following four ETFs began trading Friday, April 19:

  • iSharesBond 2016 Investment Grade Corporate Bond ETF (NYSEARCA:IBCB)
  • iSharesBond 2018 Investment Grade Corporate Bond ETF (NYSEARCA:IBCC)
  • iSharesBond 2020 Investment Grade Corporate Bond ETF (NYSEARCA:IBCD)
  • iSharesBond 2023 Investment Grade Corporate Bond ETF (NYSEARCA:IBCE)

The four funds will try to provide exposure to a diversified pool of investment grade corporate debt with a defined maturity date on March 31 for the given year in each of the fund's name. Each ETF comes with a 0.10% expense ratio.

The target-date strategies act like individual bond securities since they would mature or expire at par value and investors would be able to utilize them in a laddered bond portfolio. Consequently, investors can spread risk and stagger their exposure to varying maturities. Specifically, BlackRock has created this line of ETFs to cater toward institutional clients.

"As investment grade corporate bond markets struggle with liquidity and transparency of pricing, institutional investors continue to use fixed income ETFs to efficiently manage their bond portfolios," according to the press release.

"For some institutional investors, the idea that an ETF never matures or liquidates has been a hurdle," Matt Tucker, Head of iShares Fixed Income Investment Strategy, said in a Bloomberg article. "These funds have the pricing and liquidity of an ETF plus the finite life you get with an individual bond portfolio."

The new iShares defined maturity ETFs will be competing with Guggenheim Investments' line of BulletShares ETFs, which include both investment grade and speculative corporate debt exposure.

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.