ETF NEWS - ULTUMUS

Specific Duration

Written by Bernie Thurston | 16 September 2022

BondBloxx launches ultra-low fee specific duration US treasuries 

 

BondBloxx, a New York-based bond ETF specialist, is launching eight new bond ETFs that target very specific duration profiles for US treasuries.  

 

  • BondBloxx Bloomberg Six Month Target Duration US Treasury ETF (XHLF)  
  • BondBloxx Bloomberg One Year Target Duration US Treasury ETF (XONE)  
  • BondBloxx Bloomberg Two Year Target Duration US Treasury ETF (XTWO)  
  • BondBloxx Bloomberg Three Year Target Duration US Treasury ETF (XTRE)  
  • BondBloxx Bloomberg Five Year Target Duration US Treasury ETF (XFIV)  
  • BondBloxx Bloomberg Seven Year Target Duration US Treasury ETF (XSVN)  
  • BondBloxx Bloomberg Ten Year Target Duration US Treasury ETF (XTEN)  
  • BondBloxx Bloomberg Twenty Year Target Duration US Treasury ETF (XTWY)

 

The funds are a world first of sorts. Looking over the data, I can see no other diversified bond ETFs that target exact years on the US treasury curve.  

 

The index targets points on the curve by throwing bonds into two buckets based on duration ranges. In one bucket, there are treasuries with duration profiles below the target date. In the other, there are bonds with duration ranges above it.  

 

Bonds within each bucket get market capitalisation weighted and the whole thing gets put together so that the index averages out to the targeted duration exposure.   

Rebalances occur monthly to keep duration exposures in line with targets.  

 

The funds charge tiny 0.03% fees.  


 

Bernie’s commentary – great products 

No complaints on my end for these products. My observations of these funds, in order: 


    1. These fees are incredibly low. And they’re genuinely low: there’s no temporary fee waivers or hidden fees in the prospectus. The scale BondBloxx is going to need to hit for these funds to hit profitability will be staggering though—somewhere in the billions.  
    2. The low fees suggest to me that BondBloxxx may have some commitment from a client to provide early investment for them. Perhaps given the Fed’s mood these days, there’s a real appetite for duration management. That, or BondBloxx is just very brave.  
    3. These types of ETFs are probably mostly useful for model portfolio managers (or some other category of institutional investor) who want to express a view on interest rate changes. I can’t see these funds gaining traction with DIY retail or small independent advice firms who have no desire to express views on interest rates.
    4. A lot of the big famous bond ETFs from iShares and Vanguard have pretty stable duration profiles that are closely in line with these funds’ targets. For example TLT comes pretty close to 20 years. GOVT comes close to 7 years. Let’s see if these funds are distinctive enough.   

 

General updates: 

  • Ethereum ETFs are all fine after the merge.  
  • British ETF white labellers are benefitting big time from Brexit. While white labelling is a thriving in the US it has lagged over here. Brexit has breathed life into it.  
  • Dry Bulk Shipping ETFs, which invest in shipping futures, are the worst performing (non-geared, non-crypto) ETFs so far this year. The cost of shipping is falling as investors forecast weakening economic growth.  

 


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