A group of former BlackRock Inc. players is tapping into booming demand for credit ETFs with products targeting specific industry sectors -- bringing a new level of precision to fixed-income investing.
Launching on Thursday, BondBloxx Investment Management LLC plans to create seven exchange-traded funds carving up the U.S. high-yield debt market. That’s a common practice in equities, but rare in corporate bonds.
It comes as new ETF technology disrupts the traditional, human-based methods of trading and pricing debt.
BondBloxx has been founded by industry heavy-hitters who also held senior roles at the likes of JPMorgan Asset Management and State Street Corp. and who collectively have launched 350 ETFs. The idea is to fill the space between individual company bonds and the broad exposures offered by most funds.
“If you look at how fine the equity landscape has been cut, there is simply not the same level of precision in fixed income,” said Leland Clemons, a member of BondBloxx’s founding team and the former global head of markets at BlackRock iShares. “The gap between individual securities and broad-based exposures is very large.”
Until now, the few sectoral fixed-income ETFs that exist have been dominated by products targeting debt issued by financial companies. The first BondBloxx ETFs will also hone in on securities sold by those in the industrial, telecommunication, health-care, energy, consumer cyclical and consumer non-cyclical segments.
BondBloxx filed for the funds in August, but declined to comment on when they might start trading.
While the proposed products may bring a new level of specialization to the market for bond ETFs, their success is by no means assured.
Company debt is typically harder to slice and dice than stocks due to the sheer volume of different securities -- a single issuer could sell multiple notes with differing structures and durations. Both diversification and liquidity can become more challenging as the focus of a strategy narrows.
The Emles Real Estate Credit ETF (ticker REC) is one of the few existing examples of a sector credit ETF. It turns one year-old this month, but has attracted less than $5 million in assets after losing 0.9% in 2021 so far.