1. The Challenge: Difficulty Accessing Niche Sectors
The Pain Point: Swallowing the Cost of Inefficiency
Emerging markets often play the role of a diversifier in fixed income portfolios – but at what cost? Individual emerging market bonds trade at an average spread of 40 bps1, but some investors feel that accepting these costs is the only way to achieve the diversification the bonds provide.
2. The Challenge: Balancing Investment Performance with Liquidity Management
The Pain Point: Performance Drag
With an averagebid/ask spread of 35 bps1, frequent trading in individual high-yield bonds doesn’t come cheap. To avoid these high costs, a high-yield manager might use a cash sleeve for all-important liquidity management – but that, in turn, can lead to performance drag.
3. The Challenge: Potentially Enhanced Yield Profile of Cash Allocation
The Pain Point: Excessive Cash Drag
Liquidity is top of mind for insurers – but individual bonds may not have the necessary liquidity required by insurance industry guidelines. One result of scarcer individual bond liquidity is that insurers might hold excess cash.
The above represent just three examples of how bond ETFs can help investors create solutions in a challenging fixed income market. Among the tools investors can potentially utilize, iShares bond ETFs are particularly versatile. More than 100 iShares bond ETFs seek to track various fixed-income sectors and segments of the global bond market. Holdings can include bonds of various types, such as TIPS, MBS, munis and corporate bonds, as well as duration lengths and credit quality. In short, iShares bond ETFs offer simple, fast, and efficient access to the fixed income market.
1 Source: BlackRock as of 12/31/2019. All trade costs are estimates and not guarantees. Average spread is estimated by the average bid/ask spread.
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