NEW YORK--(BUSINESS WIRE)--BlackRock is infusing the mortgage-backed bond market with a competitively priced choice to traditional mortgage bonds: a lower cost exchange-traded fund, iShares MBS ETF (MBB). The firm is transforming MBB to be a financial instrument and risk management tool of choice for investors seeking exposure to the mortgage market. BlackRock is also launching four new fixed income smart beta and environmental, social and corporate governance (ESG) ETFs to meet increasing client demand.
iShares revolutionized the bond market with the launch of the first fixed income ETFs fifteen years ago, providing investors with liquid and transparent exposures to the bond market. Today’s moves are intended to provide clients with even more access to key markets.
Establishing MBB as the Investor Vehicle of Choice for Mortgages
The agency mortgage-backed securities markets are among the largest and highly traded financial markets in the world, attracting large capital flows from global investors. But, they largely remain over-the-counter and can be cumbersome. Seeking to make the U.S. mortgage market more efficient, particularly for institutional mortgage buyers, BlackRock is lowering the price on MBB from 27 to nine basis points to compete directly in one of the largest segments of global fixed income. The firm is positioning MBB to become a leading financial instrument and risk management tool for institutions to access physical mortgage pools.
“BlackRock’s founders pioneered the MBS markets and managing mortgage risk is deep in our firm’s DNA. With a looming unwind of the Federal Reserve’s $2 trillion mortgage portfolio, now is the time for investors to consider MBB for a core part of any MBS investment strategy,” said Martin Small, U.S. Head of iShares at BlackRock. “By lowering the price to make the fund competitive with direct investment in mortgage securities, institutions will have a much more efficient, liquid option for dynamically managing mortgage-backed exposures. Clients have responded positively to past efforts by BlackRock to lower prices on certain products in order to offer them new ways to access specific exposures. Much as we did in launching iShares Core in 2012, or the repricing of our emerging markets bond ETF EMB in March of 2015, we are tapping new client segments for growth.”
“Already the industry’s flagship mortgage-backed securities ETF, we believe today’s repositioning of MBB will make the MBS market better by making the fund even more attractive to institutional investors in the $5.5 trillion mortgage market. It provides them with an efficient, liquid exposure to a market that they have previously accessed through bank inventory. The mortgage market is undergoing substantial change, creating new investor challenges, and requiring more tools to manage risk efficiently.”
MBB provides access to the domestic mortgage-backed bond market with a single fund that seeks to track the investment results of an index composed of a broad range of investment-grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. government agencies such as Ginnie Mae, Fannie Mae, and Freddie Mac.
Launching Four New Fixed Income Funds
With record first half inflows of $84 billion year-to-date1, investors are increasingly using bond ETFs to access the global fixed income market. While bond ETFs are becoming a core holding in investor portfolios – delivering liquidity, transparency, and diversification – investors are also looking for more customization to target specific outcomes or align their portfolios with their values.2
To meet this client demand, BlackRock is expanding the iShares fixed income offering to include two new emerging categories – smart beta and ESG.
Two New Fixed Income Smart Beta Funds
BlackRock is launching two new fixed income smart beta funds, the iShares Edge Investment Grade Enhanced Bond ETF (IGEB) and the iShares Edge High Yield Defensive Bond ETF (HYDB), offering discrete exposure to investment grade and high yield corporate credit markets, respectively. Both ETFs take a smart beta approach to corporate bond investing, blending two rewarded and diversifying fixed income factors -- quality and value -- that seeks to mitigate risk while providing enhanced returns. HYDB seeks to be more defensive overall than the broad high yield corporate market and IGEB offers the potential for a higher yield than the broad investment grade corporate market.
The launch of IGEB and HYDB also represents the introduction of BlackRock’s first self-indexed funds. These new indexes are based on unique intellectual property and leverage BlackRock’s analytics and modeling capabilities. BlackRock plans to utilize self-indexing strategies in the future in areas where the firm’s leading intellectual property and longstanding fixed income market experience can add distinct incremental value to clients.
“Creating new indices and ETF products tracking them allows investors to directly benefit from BlackRock investment insights and sophisticated risk management technology developed over decades of active and index fixed income management,” said Small.
Two New Fixed Income ESG Funds
Increasingly, investors are looking for ways in which they can access traditional broad market exposures that are optimized, or re-weighted based on ESG ratings. As a global leader in both fixed income ETFs and sustainable ESG ETFs (iShares has more than $2 billion in sustainable ETFs assets under management), BlackRock is now able to offer two new, ESG fixed income funds that marry the ease and convenience of a fixed income ETF with ESG based investment strategies.
The firm is launching the iShares ESG USD Corporate Bond ETF (SUSC) and the iShares ESG 1-5 Year USD Corporate Bond ETF (SUSB). Both funds track benchmarks developed through a partnership between Bloomberg/Barclays and MSCI and are designed to deliver similar risk and return characteristics as the traditional benchmark, however achieve a higher ESG score.
“We launched the industry’s first bond ETFs fifteen years ago, giving investors exposure to Treasuries and U.S. investment grade corporate bonds for the first time in an ETF. Now we want to provide a solution for investors seeking access to fixed income through an ESG lens. These new products are the first exposures of their kind in an ETF wrapper and complement iShares existing ESG suite,” said Small.
BlackRock is a global leader in investment management, risk management and advisory services for institutional and retail clients. At March 31, 2017, BlackRock’s AUM was $5.4 trillion. BlackRock helps clients around the world meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares® (exchange-traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. As of March 31, 2017, the firm had approximately 13,000 employees in more than 30 countries and a major presence in global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company’s website at www.blackrock.com | Twitter: @blackrock_news | Blog: www.blackrockblog.com | LinkedIn: www.linkedin.com/company/blackrock
iShares® is a global leader in exchange-traded funds (ETFs), with more than a decade of expertise and commitment to individual and institutional investors of all sizes. With over 700 funds globally across multiple asset classes and strategies and more than $1.4 trillion in assets under management as of March 31, 2017, iShares helps clients around the world build the core of their portfolios, meet specific investment goals and implement market views. iShares funds are powered by the expert portfolio and risk management of BlackRock, trusted to manage more money than any other investment firm.3
MMB has a contractual fee waiver in place until 2/28/2023. The gross expense ratio is 0.12%.
Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.
The Funds’ environmental, social and governance (“ESG”) investment strategy limits the types and number of investment opportunities available to the Funds and, as a result, the Funds may underperform other funds that do not have an ESG focus. The Funds’ ESG investment strategy may result in the Funds investing in securities or industry sectors that underperform the market as a whole or underperform other funds screened for ESG standards.
Mortgage-backed securities ("MBS") and commercial mortgage-backed securities ("CMBS") are subject to prepayment and extension risk and therefore react differently to changes in interest rates than other bonds. Small movements in interest rates may quickly and significantly reduce the value of certain mortgage-backed securities.
International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets and in concentrations of single countries.
Diversification and asset allocation may not protect against market risk or loss of principal. Buying and selling shares of ETFs will result in brokerage commissions.
Shares of the iShares Funds may be bought and sold throughout the day on the exchange through any brokerage account. Shares are not individually redeemable from the Fund, however, Shares may be redeemed directly from a Fund by Authorized Participants, in very large creation/redemption units. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.
The iShares Funds are distributed by BlackRock Investments, LLC.
iShares ETFs are not sponsored, endorsed, issued, sold or promoted by Barclays, Bloomberg Finance L.P., BlackRock Index Services, LLC or MSCI Inc. None of these companies make any representation regarding the advisability of investing in the Funds. With the exception of BlackRock Index Services, LLC, who is an affiliate, BlackRock Investments, LLC is not affiliated with the companies listed above.
©2017 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. All other marks are the property of their respective owners. 222392
1 Source: BlackRock and Bloomberg, 6/26/17, global fixed
income ETF net inflows
2 Source: Cerulli, Bond ETFs: Financial Advisors Drive Use with Specialized Applications, June 2017
3 Based on $5.4 trillion in AUM as of 3/31/17