iShares Launches 5 Defined Maturity High-Yield Bond ETFs

BlackRock Inc.'s BLK iShares unit, the world's largest issuer of exchange traded funds, added to its lineup of fixed income ETFs Thursday with the debuts of five defined maturity high-yield bond ETFs.

What Happened

Defined maturity ETFs are funds holding bonds that mature in a particular year. During the fund's target year, the issuer does not reinvest coupon and interest payments, but rather holds the cash from those payments. By the end of the target year when all of the fund's holdings have matured, the issuer distributes cash proceeds to the fund's investors.

The iShares iBonds 2021 Term High Yield and Income ETF IBHA holds 110 high-yield bonds and tracks the Bloomberg Barclays 2021 Term High Yield and Income Index. Junk and BBB-rated corporate debt in IBHA mature between Jan. 1, 2021 and Dec. 15, 2021.

IBHA charges 0.35 percent per year, has an average maturity of 1.70 years and an effective duration of 1.53 years. About 86 percent of the fund's holdings are rated BB or B.

Why It's Important

The iShares iBonds 2022 Term High Yield and Income ETF IBHB features a similar approach to IBHA, but IBHB's 140 holdings mature in 2022. That new ETF, which also charges 0.35 percent annually, targets the Bloomberg Barclays 2022 Term High Yield and Income Index.

IBHB has an effective duration of 1.95 years and allocates about 81 percent of its weight to BB and B-rated bonds. Over 14 percent of the new ETF's roster is allocated to speculative CCC-rated debt.

The iShares iBonds 2023 Term High Yield and Income ETF IBHC holds 156 junk bonds maturing in 2023. IBHC has a weighted average maturity of 3.28 years and an effective duration of 2.62 years, according to issuer data. IBHC, which charges 0.35 percent per year, has an almost 15 percent to CCC-rated debt while BB and B-rated bonds represent the rest of the portfolio.

What's Next

The iShares iBonds 2024 Term High Yield and Income ETF IBHD is home 159 junk bonds maturing in 2024. That new ETF, which also charges 0.35 percent, has an effective duration of three years. Over 84 percent of IBHD's holdings are rated BB or B.

The iShares iBonds 2025 Term High Yield and Income ETF IBHE holds 175 high-yield bonds maturing in 2025, giving that new ETF an effective duration of 3.92 years and an average maturity of 4.90 years.

IBHE charges 0.35 percent annually and has an allocation of 16.67 percent to CCC-rated bonds. B and BB-rated debt make up the rest of the portfolio.

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