BlackRock alumni want to shake up the world of junk debt investing

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(Bloomberg) – A group of former BlackRock Inc. players are tapping into the growing demand for credit ETFs with products targeting specific industry sectors – bringing a new level of precision to fixed income investing.

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Launched Thursday, BondBloxx Investment Management LLC plans to create seven exchange-traded funds to carve out a niche in the US high-yield debt market. This is common practice for stocks, but rare for corporate bonds.

It comes as new ETF technology disrupts the traditional and humane ways of trading and pricing debt.

BondBloxx was founded by heavyweights in the industry who also held executive positions at JPMorgan Asset Management and State Street Corp. and who have collectively launched 350 ETFs. The idea is to bridge the gap between individual corporate bonds and the broad exposures offered by most funds.

“If you look at how much the equities landscape has shrunk, there just isn’t the same level of precision in fixed income,” said Leland Clemons, founding team member at BondBloxx and former Global Head of Markets at BlackRock iShares. “The gap between individual titles and general exhibitions is very important. “

Until now, the few existing sector bond ETFs have been dominated by products targeting debt issued by financial firms. The first BondBloxx ETFs will also focus on securities sold by the industrials, telecommunications, healthcare, energy, consumer discretionary and consumer discretionary sectors.

BondBloxx filed for the funds in August, but declined to comment when they could start trading.

Sculpture credit

Although the products offered may bring a new level of specialization to the bond ETF market, their success is by no means guaranteed.

Corporate debt is generally more difficult to settle than stocks due to the sheer volume of different securities – a single issuer could sell multiple notes with different structures and durations. Diversification and liquidity can become more difficult as the focus of a strategy narrows.

The Crédit Immobilier Emles ETF (ticker REC) is one of the rare examples of a sector credit ETF. He’s a year old this month, but has attracted less than $ 5 million in assets after losing 0.9% in 2021 so far.

Nonetheless, newcomer BondBloxx sees a gap in an industry dominated by large, broad-brushed funds. It plans to use components of the ICE BofA US junk bond index, which tracks around 2,100 bonds, to fill its ETFs.

The U.S. fixed-income ETF market has grown to nearly 500 funds managing more than $ 1.2 trillion, according to data compiled by Bloomberg. Around 150 ETFs specifically target corporate bonds, with the largest covering huge segments of the market, such as iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD). Most of the others focus on specific maturities or structures, such as the Vanguard Intermediate-Term Corporate Bond ETF (VCIT).

Growth in the industry accelerated after the Federal Reserve propped the market through the worst of the pandemic liquidation, while the need to work from home also increased the electronization of the bond market. As a result, portfolio trading – a technology-based method of trading many bonds at once, usually using ETFs – is booming.

With technology taking over older methods of bond trading, BondBloxx sees more opportunities to come.

Most of the company’s founders at one point worked for BlackRock, the world’s largest ETF issuer. They include Joanna Gallegos, most recently Head of Global ETF Strategy at JPMorgan Asset Management, Elya Schwartzman, Mark Miller, Former Head of Institutional Sales for the Americas at HSBC, and Brian O’Donnell, previously Head of Commercial Strategy at Northern. Trust Asset. Management.

“You have a lot more transmitters raising their hands and driving innovation,” Gallegos said. “This goal is going to lead to a lot of choice for customers.”

© 2021 Bloomberg LP


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