First ETF in Europe to offer exposure to BBB-BB Euro Corporate bonds, US equity ETF aimed at capitalising on buyback activity.…
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Tom Fekete, Head of Product Development for iShares in EMEA
BlackRock has expanded its equity and fixed income ranges with the launch of two ETFs. The funds aim to give highly targeted exposure to the European corporate bond market and to US companies undertaking a buyback strategy to drive shareholder returns.
The iShares Euro Corporate Bond BBB-BB UCITS ETF (IEBB) is the first ETF in Europe to provide exposure specifically to this space of Euro denominated investment grade and sub-investment grade corporate bonds. The fund targets an average monthly credit rating of BBB- by investing in Euro corporate bonds that are rated BBB and BB. The fund’s index employs a market-value weighted methodology and each issuer accounts for no more than 5% of the index.
The iShares US Equity Buyback Achievers UCITS ETF (BACK) invests in companies listed on either the NASDAQ or the New York Stock Exchange that undertake buyback programmes. Companies often buyback their shares if they believe they are undervalued, or to optimise their capital structure. To qualify for inclusion in the fund’s underlying index, companies must have carried out a buyback of at least 5% of their shares in issue in the prior 12 months, and demonstrate financial stability according to a fundamental screening process. Securities are then weighted based on their buyback ratios and the amount of a single stock in the index is capped at 5% to ensure diversification.
Tom Fekete, Head of Product Development for iShares in EMEA, commented: “Investors are increasingly turning to ETFs as a way to gain precise exposure to markets that have otherwise been difficult to access. These funds give instant and low-cost access for those investors wanting to express a specific view on European corporate bond and US equity markets.
“The launch of the Euro corporate bond fund is the first time investors will be able to access Euro denominated investment grade and sub-investment grade corporate bonds through an ETF. When an investment grade bond is downgraded to high yield or is upgraded from high yield to investment grade, it typically leads to large price movements and trading volumes. At that moment there are attractive risk-return opportunities and our fund is designed to capitalise on this.
“Many investors look favourably at companies that improve shareholder returns by buying back their shares, and we expect a continuation of buyback activity by US firms in 2015 as the cost of financing remains low. Our fund provides a new way of targeting these companies, and is designed to give investors access to those firms that execute buybacks at times when their share prices are attractive.”
The iShares US Equity Buyback Achievers UCITS ETF and iShares Euro Corporate Bond BBB-BB UCITS ETF have a total expense ratio of 0.55% and 0.25% respectively