iShares to change corporate bond ETF benchmark

iShares is set to change the benchmark for its Markit iBoxx Corporate Bond exchange traded funds (ETFs) to ensure the funds have enough liquidity.

The £1.3bn iShares Markit iBoxx £ Corporate Bond ETF will change its benchmark from the Markit iBoxx Sterling Liquid Corporates Long-Dated Bond index to the Markit iBoxx GBP Liquid Corporates Large Cap index on March 1 2013 if shareholders vote to approve the move in a general meeting on January 21.

The dollar and euro denominated funds will also change their benchmarks at the same time.

Article continues after advert

iShares said that it wanted to move the ETFs to “broader, more diversified benchmark indices”.

“Due to the significant size of the sub-funds, related to the size of the current benchmark indices, adequate tracking by the sub-funds will soon cease to be viable without moving to broader benchmark indices,” iShares said.

“This is because the current benchmark indices have a small number of constituents, which become increasingly difficult to replicate as the sub-funds benchmarked to them have grown in size.”

The current index for the sterling bond ETF has 40 constituents from 40 issuers but the new index will have 320 constituents from 99 issuers.

iShares said that the risk profile of the ETFs would not change as a result of the change and that it would continue to focus on the larger and more liquid areas of the market.

The news comes after BlackRock started issuing letters to iShares investors, promising them protection from any losses incurred by the stock lending practices of the ETFs.

BlackRock last year had said it would indemnify its ETF range from the risk of a borrower default as part of its stock lending practices, but has now given investors official protection in writing.