Major ETF company ups its fixed income offerings

Major ETF company ups its fixed income offerings

Major ETF company ups its fixed income offerings WP gets an inside peek at a new fund-of-funds.
 
BlackRock, Canada’s largest ETF company launched a new fund-of-funds Monday. If you’re an advisor who doesn’t like to get hands on when it comes to fixed income investments this could be what you’re looking for in your client’s investment portfolio.
 
WP spoke by phone with Pat Chiefalo, iShares’ head of product in Canada. The product guru, who gave us some good perspective recently on the ETF space in 2015, was understandably excited to talk about his new baby.
 
The product in question is the iShares Short Term Strategic Fixed Income ETF (XSI). The portfolio consists of six ETFs designed to generate greater income in a low-yield environment. If you’re familiar with the iShares product line we’re talking about the XFR, XHY, XHB, IEMB, XSH, and IHYG ETFs.

It’s designed to optimize the balance between yield and duration — 3.9% yield and 3.5 year duration — at a time when the fixed income landscape is quickly evolving.
 
Enough with the marketing-speak.
 
Chiefalo gives several reasons for owning XSI.
 
1. It protects against interest rate volatility and the overall risk of the entire portfolio.

 “We used our family of ETFs to achieve the maximum amount of yield possible within those two risk constraints, i.e., ensuring that it’s a short-term product which controls against interest rate volatility and balances the overall risk of the portfolio to be in line with the Canadian aggregate fixed income market.”
 
2. It provides a yield that’s much higher than the Canadian aggregate fixed market.

“The current yield to maturity number is 3.9% and that’s more than 150 basis points above the Canadian aggregate fixed income market. We have some products [in the XSI) that control duration risk and we have some that help raise the yield component.”
 
3. It’s a solutions-driven product.

“To us it’s less about the trend but more that we [iShares] wanted to be there for advisors who needed incremental help on credit and duration.”

At the end of the day XSI represents a product suite that’s truly diversified and unique in this marketplace. There really isn’t a huge amount of choice on this front.
 
Chiefalo summed it up by stating: “I don’t know if there’s that many out there… We’ve tried to hit some of the characteristics we know people have a hard time getting such as global diversification, risk controls on interest rate and total risk… There aren’t a lot of products that are going to offer you that kind of combination [of features].”
 
As we said, iShares has upped its fixed income offerings.