Product review: iShares sovereign debt ETFs
Eight eurozone countries targeted for fixed income debt exposure in latest offerings from BlackRock exchange traded fund outfit
A suite of eight sovereign debt ETFs available on the London Stock Exchange has been released by BlackRock’s iShares subsidiary.
In what amounts to the first ETFs of their kind, treasury bond ETFs are being launched for Austria, Belgium, Finland, the Netherlands and Spain. The company is also launching similar funds for France, Germany and Italy.
All funds will be physically backed and invest in government-issued debt. Bonds bought will have a term of at least one year until maturity.
They all employ a sampling method of physical replication rather than a full replication model.
Current holdings range from 11 holdings in the Finland ETF to 53 holdings in the Italy ETF, with an average of 30 bonds across the range.
Each fund will have a total expense ratio of 0.2%.
We’ve noted before that iShares never sits still for long – in the past year, we have covered the launch of its emerging markets ETFs and precious metals ETFs – and this latest release is designed to capitalise on recent trends in government debt.
While there is a multitude of government debt funds available, this move puts the fixed income within reach of investors with a preference for liquidity.
This range of funds is very granular, allowing investors to target specifically the countries they would like to without risk from countries they would not want exposure to. Providing this much country-specific choice allows a view to be taken on individual countries rather than just the concept of government debt as a fixed income instrument.
The breadth of each fund differs, however. As seen above, Finland has only 11 holdings rather than a diverse spread. This gives it less wiggle room than, say, Italy, which has 53 different holdings. This could pose an issue for investors looking for diversification even within a narrow field.
Additionally, some of the bonds are long-term, stretching into 2030 and beyond. While government bonds are generally considered ‘safe’, investors have seen only recently how the huge restructuring of Greek debt altered the playing field and other eurozone countries are not immune to the state of the economy in the short or long term.