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BOND ETF 101
A LOW-COST SOLUTION FOR TODAY’S BOND MARKET
In today’s yield-starved world, consider a way to help offset equity risk, preserve capital and seek income.
THE BENEFITS OF BOND ETFs
COMPETITIVE PERFORMANCE
iShares bond ETFs have outperformed 48% of their peers over the last 3 years.1
LOW COST
On average, iShares bond ETFs cost 79% less than active mutual funds.2
LIQUIDITY
Bond ETFs trade thousands of times throughout the day on the exchange, while individual bonds may not trade daily.3
BOND ETFs ARE THE FASTEST GROWING SEGMENT OF THE BOND MARKET
Bloomberg 12/31/2021.
Over the last two decades, falling interest rates have made buying a home so much easier.
The reverse has happened with portfolio construction – low interest rates tend to make building portfolios more complex.
But today, with rates so low, you need to think harder about what role you want bonds to play in your portfolio, because no one bond fund can do it all.
Core bonds can diversify equities providing protection when stocks sell off.
Low duration and flexible funds seek capital preservation, looking for consistent returns across all markets.
While high yield funds can generate high income.
So what's the right bond mix for your portfolio? Here's where some investors get stuck.
One common mistake is many investors who take an aggressive approach to their stock portfolio tend to buy aggressive bonds, adding high yield to their equity-heavy portfolio.
But this is the opposite of what they should do, because, as your overall portfolio allocation gets more aggressive the bonds within it actually need to be more conservative.
We call this “The Bond Paradox.”
That’s where the BlackRock Bond Pyramid comes in - here's how it works.
An aggressive equity investor needs their limited bond allocation to diversify stocks. That means they should consider owning conservative bonds with high credit quality and longer duration.
On the other hand, a conservative investor who has less stock risk may want to dip more into credit and higher income bond funds for yield.
The BlackRock Bond Pyramid makes it easy to tailor your bonds to your overall asset allocation.
Start building a better bond portfolio today!
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 the Funds’ prospectus pages on ishares.com and blackrock.com. Read the prospectus carefully before investing.
How to blend bond ETFs and active funds
The BlackRock Bond Pyramid showcases ways to blend active funds with bond ETFs to help meet portfolio goals or prepare for changing markets.
iSHARES BOND ETFs
Whether your clients' goals are equity diversification, capital preservation or income, iShares bond ETFs can help you meet their needs.
Broad market bond ETFs can offer low correlation relative to stocks, which can help reduce overall risk in a portfolio.
Net Asset Value
USD 102.56
YTD Nav Return
-9.59%
Net Asset Value
USD 111.42
YTD Nav Return
-15.31%
Net Asset Value
USD 104.47
YTD Nav Return
-9.52%
Try to earn a little more from your cash with short duration bond ETFs.
Net Asset Value
USD 49.42
YTD Nav Return
-0.83%
Net Asset Value
USD 47.72
YTD Nav Return
-4.84%
Net Asset Value
USD 50.80
YTD Nav Return
-5.14%
Seek a higher level of income with high yield bonds, emerging market debt, or preferred stocks.
Net Asset Value
USD 35.91
YTD Nav Return
-10.92%
Net Asset Value
USD 88.68
YTD Nav Return
-16.75%
Net Asset Value
USD 33.04
YTD Nav Return
-14.86%
Performance data represents past performance and does not guarantee future results. Investment return and principal value will fluctuate with market conditions and may be lower or higher when you sell your shares. Current performance may differ from the performance shown. For most recent month-end performance and standardized performance, click on the fund ticker above.
Want to learn more about the benefits of bond ETFs?
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1 Source: BlackRock calculation using fund performance rankings from Morningstar, as of 12/31/21. Comparison universe is ETFs and mutual funds in the Morningstar category and uses total return. Overall figure is a weighted average of the percentage of funds that the iShares bond ETFs have outperformed in each Morningstar category, weighted based on the number of funds in the Morningstar category. The funds outperformed 44%, 45% and 37% of peers on a 1, 5 and 10 year basis, respectively. Performance may be different for other time periods.
2 Source: Morningstar as of 12/31/21. Comparison is between the Prospectus Net Expense Ratio for the average Fixed Income iShares ETF (0.18%) and the average Fixed Income Open-End Mutual Fund (0.85%) available in the U.S. ex money market funds.
3 TRACE and Markit iBoxx from 12/01/21 to 12/31/21.
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 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. There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to federal or state income taxes or the Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable.
Preferred stocks are not necessarily correlated with securities markets generally. Rising interest rates may cause the value of the Fund’s investments to decline significantly. Removal of stocks from the index due to maturity, redemption, call features or conversion may cause a decrease in the yield of the index and the Fund.
Diversification and asset allocation may not protect against market risk or loss of principal.
The BlackRock Short Maturity Bond ETF will invest in privately issued securities that have not been registered under the Securities Act of 1933 and as a result are subject to legal restrictions on resale. Privately issued securities are not traded on established markets and may be illiquid, difficult to value and subject to wide fluctuations in value. Delay or difficulty in selling such securities may result in a loss to the BlackRock Short Maturity Bond ETF. The Fund may invest in asset-backed (“ABS”) and mortgage-backed securities (“MBS”) which are subject to credit, prepayment and extension risk, and react differently to changes in interest rates than other bonds. Small movements in interest rates may quickly reduce the value of certain ABS and MBS.
Shares of ETFs may be bought and sold throughout the day on the exchange through any brokerage account. Shares are not individually redeemable from the ETF, however, shares may be redeemed directly from an ETF by Authorized Participants, in very large creation/redemption units.
Transactions in shares of ETFs may result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders.
There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.
This material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.
The tool, and any data used by the tool, is provided on an "as-is" basis. BlackRock expressly disclaims all warranties, express or implied, statutory or otherwise with respect to the tool (and any data used by the tool and the results obtained from use of the tool) including, without limitation, all warranties or merchantability, fitness for a particular purpose or use, accuracy, completeness, originality and/or non-infringement. In no event shall BlackRock have any liability for any claims, damages, obligations, liabilities or losses relating to the tool including, without limitation, any liability for any direct, indirect, special, incidental, punitive and/or consequential damages (including loss of profits or principal).
This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change.
Prepared by BlackRock Investments, LLC,member FINRA.
© 2022 BlackRock, Inc. All Rights Reserved. BLACKROCK and iSHARES are trademarks of BlackRock, Inc. All other trademarks are those of their respective owners.
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