iShares Yield Optimized Bond ETF (ARCA: BYLD)

Latest news for iShares Yield Optimized Bond ETF (ARCA:BYLD)

iShares Yield Optimized Bond ETF

The Fund is a fund of funds and seeks to track the investment results of the Morningstar U.S. Bond Market Yield-Optimized Index. Fund will invest at least 90% of its assets in fixed income securities of the types included in the Underlying Index that BFA believes will help the Fund track the Underlying Index. The Fund will invest no more than 10% of its assets in futures, options and swaps contracts that BFA believes will help the Fund track the Underlying Index as well as in fixed income securities other than the types included in the Underlying Index.

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BYLD

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New iShares Bond ETF Seeks Optimal Income Mix

Income investing has quickly become a hot button topic among ETF investors who are searching for the right mix of credit quality, duration, and yield. 

	The threat of rising interest rates and below-average dividend streams from traditional aggregate bond funds has many income seekers looking for alternative strategies to meet their needs.

	With that goal in mind, Blackrock (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>) just recently launched the iShares Yield Optimized Bond ETF (NYSE: <a class="ticker" href="/stock/byld#NYSE">BYLD</a>).  
	This ETF is a “fund of funds” that takes a multi-sector approach to it’s fixed-income allocation by utilizing other iShares ETFs for it’s underlying holdings. 

	The top three funds in BYLD include: iShares MBS ETF (NYSE: <a class="ticker" href="/stock/mbb#NYSE">MBB</a>), iShares High Yield Corporate Bond ETF (NYSE: <a class="ticker" href="/stock/hyg#NYSE">HYG</a>) and iShares Intermediate Credit Bond ETF (NYSE: <a class="ticker" href="/stock/ciu#NYSE">CIU</a>).

	BYLD is unique in that it gives you access to a variety of individual sectors of the U.S. bond market without the overweight nature of treasuries, investment grade corporate bonds, and agency securities that make up the iShares Core Total U.S. Bond ETF (NYSE: <a class="ticker" href="/stock/agg#NYSE">AGG</a>).

	See also: <a href="http://www.benzinga.com/etfs/broad-u-s-equity-etfs/14/04/4499702/3-mega-cap-etfs-for-your-portfolio-mgc-oef-xlg-aapl-msft">3 Mega Cap ETFs For Your Portfolio</a>

	BYLD is clearly focused more focused on the credit side of the spectrum and has a very low allocation to high quality fixed-income securities.  Treasuries are typically more sensitive to changes in interest rates, while high yield bonds fluctuate in relation to corporate and economic outlook.  

	This may play right into the wheel house of retirees, pension funds and other income portfolios that are looking to eschew interest rate sensitivity in favor of taking on <a href="http://www.benzinga.com/etfs/sector-etfs/14/03/4413843/2-diversified-etfs-for-high-monthly-income">additional credit risk for greater yield</a>. The top three holdings in BYLD all have effective durations of less than 4.5 years, while AGG has an effective duration of 5.2 years.  

	Because BYLD is so new, it has yet to distribute any income from which to calculate the current yield.  However, it is sure to be higher than the current 2.07 percent yield of AGG.  

	It will be interesting to see if BYLD makes significant headway in attracting assets away from more established fixed-income ETFs in this space.

	While that landscape has proven to be a tough hill to climb, BYLD has many attractive qualities that set it apart from it’s competitors and make for a compelling investment thesis.

With the Fed having clearly stated that it is in no hurry to raise interest rates, yields are expected to remain low at least for this year. As such, yield-hungry investors are left with very few options to choose from (read: <a href="http://www.zacks.com/stock/news/132566/3-long-term-bond-etfs-surging-as-rates-stay-low">3 Long Term Bond ETFs Surging as Rates Stay Low</a>). 
 
Investors have been opting for products like high-yield junk bonds or emerging market bonds to meet their yield requirements. Thus, there has been a trade-off between yield and portfolio risk as it is quite difficult to get a product that matches both criteria – a decent yield and comparatively lesser risk. 
 
To help satisfy this search, iShares has recently launched a new fund, iShares Yield Optimized Bond ETF (<a href="http://www.zacks.com/funds/etf/BYLD/profile?q=byld">BYLD</a>), which has hit the market on April 22, 2014. The fund has garnered $7.5 million since its inception. 
 
BYLD in Focus 
 
The newly launched product seeks to track the Morningstar U.S. Bond Market Yield-Optimized Index, which is composed of underlying fixed income funds that collectively seek to deliver current income. 
 
“The index seeks to optimize a portfolio of iShares fixed income ETFs to find a combination that provides the highest potential yield, while seeking a level of portfolio risk that is in line with the broader U.S. bond market,” said Matthew Tucker, Head of iShares Fixed Income Investment Strategy. 
 
With this approach, BYLD seems to be a “fund of funds”, offering investors a wide spectrum of U.S. bond ETFs in a single fund. Notably, all the funds included are by the issuer iShares itself. 
 
The top three funds in BYLD include iShares MBS ETF (<a href="http://www.zacks.com/funds/etf/MBB/profile?q=mbb">MBB</a>), iShares iBoxx USD High Yield Corp Bond (<a href="http://www.zacks.com/funds/etf/HYG/profile?q=hyg">HYG</a>) and iShares Intermediate Credit Bond ETF (<a href="http://www.zacks.com/funds/etf/CIU/profile?q=ciu">CIU</a>) having 29.92%, 19.79% and 18.28% of allocation, respectively. 
 
The fund provides exposure to various categories of bonds traded in the U.S. market, such as, Government Bonds, Investment Grade Corporate or Floating Rate Bonds, Non- Investment Grade Corporate and mortgage-backed debt (read: <a href="http://www.zacks.com/stock/news/132330/powershares-launches-variable-rate-preferred-etf">PowerShares Launches Variable Rate Preferred ETF</a>). 
 
The index maintains a weight allocation of 0-50% US Government Bonds, 0-10% Inv Grade Corp / Floating Rate, 0-50% Securitized and 0-20% Non-investment grade bonds at each rebalance date. This rebalancing every quarter will eliminate concentration risk. 
 
The product seems to focus on the middle part of the yield curve, having a weighted average maturity of 6.78 years and an effective duration of 5.14 yrs. This suggests moderate interest rate risk for the product. 
 
BYLD charges 28 basis points as fees. 
 
How might it fit in a portfolio? 
 
The product is an interesting choice for investors seeking to earn higher yield, while keeping risk at bay. Moreover, the fund also provides diversification benefits by holding a variety of bonds in a single fund. 
 
Also, given that the Fed is expected to maintain low interest rates for a prolonged period, the fund is a suitable choice for investors finding it difficult to obtain fixed income products with a decent level of yield (read: <a href="http://www.zacks.com/stock/news/122278/3-bond-etfs-surging-as-interest-rates-tumble">3 Bond ETFs Surging as Interest Rates Tumble</a>). 
 
Even if the Fed does hike rates, the fund is not expected to take as hard a beating as other Treasury, High Yield and Mortgage-backed debt bonds. The product's nice blend of each type of bonds reduces interest rate risk. 
 
Competition  
 
The fund is likely to face competition from other products in the Total Bond Market ETF space, which also provides exposure to a variety of public, investment-grade and taxable fixed income securities in the U. S. 
Vanguard Total Bond Market ETF (ETF:BND) is likely to be the biggest competitor for this fund. 
 
BND is the most popular product in this space with an asset base of $19.5 billion and an expense ratio of 10 basis points. However, unlike BYLD, the fund has a large exposure to U.S. treasuries (see all <a href="http://www.zacks.com/funds/etfs/etf-categories/Total-Bond-Market-ETFs-25">Total Bond Market ETFs here</a>). 
 
There are several other products as well in this space, such as, Vanguard Short-Term Bond ETF (ETF:BSV), Vanguard Intermediate-Term Bond Index Fund (ETF:BIV) and PIMCO Total Return ETF (ETF:BOND), all of which provide exposure to various bond types. 
 
However, what differentiates BYLD from the rest is that the fund is not too heavily weighted towards government bonds or investment grade bonds. This feature also makes BYLD distinct from iShares Core Total U.S. Bond Market ETF (ETF:AGG), which also has the top exposure to Treasuries. 
 
Nonetheless, the product's rebalancing feature renders it slightly expensive from the rest, though the product's nice mix of bond types might enable it to garner more assets over the long term. 
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. <a href="http://www.zacks.com/registration/pfp/?ALERT=RPT_7BST_LP194&ADID=ZACKS_PFP_7BEST_ETF">Click to get this free report >></a> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. <a href="http://www.zacks.com/registration/pfp/?ALERT=RPT_7BST_LP194&ADID=BENZ_CONTENT_ZER_ARTCAT_ETF_NEWS_AND_COMMENTARY" target="_blank">Click to get this free report</a>   <a href="http://www.zacks.com/registration/pfp/?ALERT=ETF225&adid=BENZ_CONTENT_ETF_ARTCAT_ETF_NEWS_AND_COMMENTARY&d_alert=rd_final_rank&t=AGG&split=1">ISHARS-BR AG BD (ETF:AGG): ETF Research Reports</a>   <a href="http://www.zacks.com/registration/pfp/?ALERT=ETF225&adid=BENZ_CONTENT_ETF_ARTCAT_ETF_NEWS_AND_COMMENTARY&d_alert=rd_final_rank&t=BSV&split=1">VANGD-SHT TRM B (ETF:BSV): ETF Research Reports</a>   <a href="http://www.zacks.com/registration/pfp/?ALERT=ETF225&adid=BENZ_CONTENT_ETF_ARTCAT_ETF_NEWS_AND_COMMENTARY&d_alert=rd_final_rank&t=BYLD&split=1">ISHA-YLD OPT BN (NYSE: <a class="ticker" href="/stock/byld#NYSE">BYLD</a>): ETF Research Reports</a>   <a href="http://www.zacks.com/registration/pfp/?ALERT=ETF225&adid=BENZ_CONTENT_ETF_ARTCAT_ETF_NEWS_AND_COMMENTARY&d_alert=rd_final_rank&t=CIU&split=1">ISHARS-IM CB (ETF:CIU): ETF Research Reports</a>   <a href="http://www.zacks.com/registration/pfp/?ALERT=ETF225&adid=BENZ_CONTENT_ETF_ARTCAT_ETF_NEWS_AND_COMMENTARY&d_alert=rd_final_rank&t=HYG&split=1">ISHARS-IBX HYCB (ETF:HYG): ETF Research Reports</a>   <a href="http://www.zacks.com/registration/pfp/?ALERT=ETF225&adid=BENZ_CONTENT_ETF_ARTCAT_ETF_NEWS_AND_COMMENTARY&d_alert=rd_final_rank&t=MBB&split=1">ISHARS-MBS (ETF:MBB): ETF Research Reports</a>   <a href="http://www.zacks.com/stock/news/133081/inside-the-new-ishares-yield-optimized-bond-etf">To read this article on Zacks.com click here.</a>   <a href="http://www.zacks.com/">Zacks Investment Research</a>   <a href="http://www.zacks.com/registration/pfp/?ALERT=RPT_7BST_LP194&ADID=ZACKS_PFP_7BEST_ETF">Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report</a>

Income investing has quickly become a hot button topic among ETF investors who are searching for the right mix of credit quality, duration, and yield.&nbsp;

	The threat of rising interest rates and below-average dividend streams from traditional aggregate bond funds has many income seekers looking for alternative strategies to meet their needs.

	With that goal in mind, Blackrock (NYSE: <a class="ticker" href="/stock/blk#NYSE">BLK</a>) just recently launched the iShares Yield Optimized Bond ETF (NYSE: <a class="ticker" href="/stock/byld#NYSE">BYLD</a>). &nbsp;
	This ETF is a &ldquo;fund of funds&rdquo; that takes a multi-sector approach to it&rsquo;s fixed-income allocation by utilizing other iShares ETFs for it&rsquo;s underlying holdings.&nbsp;

	The top three funds in BYLD include: iShares MBS ETF (NYSE: <a class="ticker" href="/stock/mbb#NYSE">MBB</a>), iShares High Yield Corporate Bond ETF (NYSE: <a class="ticker" href="/stock/hyg#NYSE">HYG</a>) and iShares Intermediate Credit Bond ETF (NYSE: <a class="ticker" href="/stock/ciu#NYSE">CIU</a>).

	BYLD is unique in that it gives you access to a variety of individual sectors of the U.S. bond market without the overweight nature of treasuries, investment grade corporate bonds, and agency securities that make up the iShares Core Total U.S. Bond ETF (NYSE: <a class="ticker" href="/stock/agg#NYSE">AGG</a>).

	See also: <a href="http://www.benzinga.com/etfs/broad-u-s-equity-etfs/14/04/4499702/3-mega-cap-etfs-for-your-portfolio-mgc-oef-xlg-aapl-msft">3 Mega Cap ETFs For Your Portfolio</a>

	BYLD is clearly focused more focused on the credit side of the spectrum and has a very low allocation to high quality fixed-income securities.&nbsp; Treasuries are typically more sensitive to changes in interest rates, while high yield bonds fluctuate in relation to corporate and economic outlook. &nbsp;

	This may play right into the wheel house of retirees, pension funds and other income portfolios that are looking to eschew interest rate sensitivity in favor of taking on <a href="http://www.benzinga.com/etfs/sector-etfs/14/03/4413843/2-diversified-etfs-for-high-monthly-income">additional credit risk for greater yield</a>. The top three holdings in BYLD all have effective durations of less than 4.5 years, while AGG has an effective duration of 5.2 years. &nbsp;

	Because BYLD is so new, it has yet to distribute any income from which to calculate the current yield.&nbsp; However, it is sure to be higher than the current 2.07 percent yield of AGG. &nbsp;

	It will be interesting to see if BYLD makes significant headway in attracting assets away from more established fixed-income ETFs in this space.

	While that landscape has proven to be a tough hill to climb, BYLD has many attractive qualities that set it apart from it&rsquo;s competitors and make for a compelling investment thesis.&nbsp;

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