BlackRock Debuts 3 Bond BuyWrite ETFs
BlackRock Inc. rolled out on Monday the first U.S.-listed exchange-traded funds to implement a BuyWrite strategy with bonds.
Each of the three funds tracks an index that represents a portfolio that holds an iShares bond ETF and applies a BuyWrite strategy that involves selling European-style one-month call options on the underlying fund.
The three new ETFs, their related bond ETFs and their expense ratios are as follows:
The iShares Investment Grade Corporate Bond BuyWrite Strategy ETF (LQDW) holds the $37 billion iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD) and comes with an expense ratio of 0.34%.
The iShares High Yield Corporate Bond BuyWrite Strategy ETF (HYGW) holds the $15 billion iShares iBoxx USD High Yield Corporate Bond ETF (HYG) and comes with an expense ratio of 0.69%.
The iShares 20+ Year Treasury Bond BuyWrite Strategy ETF (TLTW) holds the $25 billion iShares 20+ Year Treasury Bond ETF (TLT) and has an expense ratio of 0.35%.
Each fund lists on Cboe Global Markets.
The press release from iShares notes the new funds offer the possibility of income from two different sources, including the premiums resulting from the sale of the monthly call options and the income generated by the underlying bond ETFs.
“Market participants have used a buy-write strategy on equities since options were first listed more than 50 years ago. The iShares Bond BuyWrite ETFs introduce these capabilities to fixed income, pioneering new possibilities for an asset class sitting at the center of so many long-term portfolios,” said Carolyn Weinberg, BlackRock’s global head of product and index investments.
BuyWrite strategies involving fixed income are not common, and it’s unclear what kind of results investors can expect from such a product. When applied to equities, BuyWrite strategies are generally considered fairly low risk, with investors in an ideal situation giving up a small amount of upside performance in exchange for higher income generation.
Contact Heather Bell at heather.bell@etf.com
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