FIXED INCOME FOR STRATEGIC ASSET ALLOCATION

Case studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience, and should not be interpreted as advice or a recommendation.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

THE BUYER

An insurer adds a long-term EUR125 million allocation to iShares corporate bond UCITS ETF to its strategic asset allocation

THE BACKGROUND

A recently established insurer had been rapidly increasing their assets through acquisitions. In May, they were looking to implement a change to their strategic asset allocation, adding European investment grade credit as a diversifier to their portfolio.

THE CHALLENGE

The insurer was looking for a long-term allocation and examined various wrappers, including ETFs, Index Mutual Funds and active funds. Finding individual investment grade bonds was difficult because liquidity and new issuance dried up in February and March 2020.

THE TRADITIONAL APPROACH

The insurer would typically look at using Index Mutual Funds or active funds to source this exposure.

THE FIXED INCOME ETF APPROACH

The insurer was comforted by iShares corporate bond UCITS ETF liquidity characteristics and the estimated total cost of ownership of the fund. The ETF provided broad exposure to the desired asset class through an instrument able to deliver the liquidity they needed at an attractive overall cost. This enabled the firm to have the ability to adjust the position around the edges on a regular basis and at an attractive cost of execution, despite EUR-denominated investment grade credit being a strategic holding.

Efficient access to investment grade bonds with iShares corporate bond UCITS ETF (Bid/ask spread comparison)

Efficient access to investment grade bonds with IEAC

Source: BlackRock, Bloomberg (as of 30 April 2020).
*Left hand side. *Right hand side.
For illustrative purposes only.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of 13 October 2020 and may change as subsequent conditions vary.

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