iBonds ETFs: What investors should know about fixed-term bond ETFs

With iBonds ETFs, the first fixed-term bond ETFs were launched in Europe. This is what you need to know about the new bond ETFs.

• iBonds ETFs have a fixed maturity date
• Diversified portfolio as opposed to individual bonds
• Easier access to bond markets

These are iBonds ETFs

The asset manager BlackRock has launched the so-called iBonds ETFs in Europe under its iShares brand. This is a product that, like a bond, has a fixed maturity date on which the capital is repaid. However, other ETFs, mutual funds or regular bond ETFs do not have a fixed maturity date. iBonds offer as opposed to individual debentures a diversified portfolio of bonds that all mature in the same calendar year. According to iShares, the iBonds will be traded on an exchange and “offer investors the opportunity to invest in bond markets that have traditionally been difficult to access”. They can be bought or sold like a share or an ETF – investors can also get in or out during the term. The iBonds also offer transparency as the fund holdings are disclosed daily.

According to iShares, the iBonds ETFs are constructed so that the yield-to-maturity profile is similar to that of the bonds held. The expected return to maturity is to be guaranteed “through a combination of regular distributions and a distribution on the end date”.

iBonds ETFs always end in December of the year specified in the fund name, the bonds held reach maturity earlier in the year. After all bonds mature, the ETF closes and “shareholders receive a final distribution equal to the fund’s net asset value (NAV) after liabilities,” which is “comparable to the principal repayment of a single bond at maturity,” writes iShares.

Various advantages combined

BlackRock sees a number of advantages in the product range: “iBonds ETFs have a maturity like a bond, can be traded like a stock and are diversified like a fund – all in a cost-effective and transparent ETF package. The fixed maturity of the iBonds ETFs give investors clarity on their return expectations and investment horizon. Bond ETFs are increasingly being used as an alternative to selecting individual bonds, which is often costly for investors,” AssCompact quoted David Wenicker, Head of iShares & Wealth at BlackRock in Germany. Christian Bimueller, Head of Digital Distribution Continental Europe for iShares & Wealth at BlackRock, explains: “We are expanding access to the bond market and making investing in bonds possible and affordable for everyone. iBonds are designed to have fixed maturities like a bond how a stock can be traded and how a fund can be diversified, all in the cost-effective and transparent ETF structure.”

Not only BlackRock itself, but also independent observers are positive about the iBonds ETFs. “I’m skeptical about ‘innovative’ financial products, but iShares iBonds are a good idea,” WELT quoted the well-known private investor Christian Röhl as saying. “The same profile as a single bond, but diversified,” says Röhl. And Jörg Wenner, asset manager at Fidus Finanz AG, said: “For private investors, the new products are definitely a very attractive alternative to current product options on the market”.

However, according to justETF, BlackRock’s iBonds ETFs should be of particular interest to more experienced ETF investors and investors who want to build interest rates by successively buying ETFs with maturities in different years. The target group is more likely to be institutional investors or experienced private investors who have larger sums available for the fixed-interest portion of their portfolio.

Editorial office finanzen.net

This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.

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