BondBloxx launches triple B rated corporate bond ETFs

BondBloxx has rolled out three ETFs that offer exposure to triple B rated corporate bonds.

The BBB Rated 1-5 Year Corporate Bond ETF, BBB Rated 5-10 Year Corporate Bond ETF and BBB Rated 10+ Year Corporate Bond ETF will target triple B rated corporate bonds within their respective maturity ranges, the company said in an announcement.

“While there are existing funds that target maturity ranges within investment-grade corporate bonds, these funds offer a new level of precision by enabling investors to target BBB-rated corporate bonds within various maturity ranges,” the company said.

Over the past two decades, triple B rated corporate bonds have historically outperformed the broad investment-grade corporate bond universe by more than 50 basis points per year, “with no incremental default risk”, the company said, citing Bloomberg data as of December 31.

This article was previously published by Ignites, a title owned by the FT Group.

“Investors who own broad investment-grade ETFs in different maturity categories can now use these new BondBloxx ETFs to target BBB-rated bonds and benefit from the higher coupon of this compelling segment within the investment-grade corporate bond market,” BondBloxx co-founder Tony Kelly said in the release.

The three ETFs each have expense ratios of 19bp, prospectuses show.

BondBloxx co-founder and chief investment officer Elya Schwartzman is the sole portfolio manager on the ETFs.

He also manages the remaining 20 ETFs in BondBloxx’s $2.5bn fixed income ETF suite, according to data from Morningstar Direct.

Investors piled $1.9bn into those ETFs during 2023, according to Morningstar data.

“We’ve identified BBB-rated corporate bonds as a persistent outperformer within the US investment-grade universe,” said JoAnne Bianco, investment strategist at BondBloxx. “That’s been driven by their historically higher average coupon income compared to broad US corporates and also to US aggregate indices.”

Although the ETFs track indices, investors can use them as active strategies in terms of weightings, Bianco said.

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“So instead of just a broad US corporate index strategy, you can decide where you want to be on the curve, and you can decide to focus on this credit quality in particular,” she said. “So, they’re passive, but for an active strategy.”

The ETFs represent BondBloxx’s foray into the investment-grade corporate bond universe, Bianco said, adding that the fixed-income ETF market has been “underserved” relative to equities in terms of choice.

Although BondBloxx is predicting “another good year” for fixed-income funds, investors should “pick their spots,” she said.

“We still really like high-yield corporates, but we also like BBB corporates,” Bianco said. “So, we think that these funds are really well-timed in terms of an area that we think is attractive for investors.”

*Ignites is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignites.com.