Exchange-traded funds (ETFs) make it easy for equity investors to build strategies targeting specific industries or sectors. However, fixed-income investors haven’t enjoyed the same level of flexibility. Most bond ETFs only enable investors to build strategies around the type of bond (e.g., government or corporation) and attributes like duration.
Let’s take a look at one investment manager opening the door to industry-specific bonds and how they might fit in your portfolio.
Don’t forget to check our Fixed Income Channel to learn more about generating income in the current market conditions.
Targeted Exposure with BondBloxx
BondBloxx Investment Management recently launched seven ETFs providing investors with exposure to high-yield ‘junk’ bonds divided into specific industries. As a result, fixed-income investors can execute sector-specific strategies and more precisely construct their portfolios based on their investment thesis.
| Name | Ticker | Industries |
| BondBloxx US High Yield Energy Sector ETF | XHYE | Exploration & Production, Gas Distribution, Oil Field Equipment, Refining |
| BondBloxx US High Yield Industrial Sector ETF | XHYI | Basic Materials, Capital Goods, Transportation |
| BondBloxx US High Yield Financial & REIT Sector ETF | XHYF | Banking, Financial Services, Insurance, REIT |
| BondBloxx US High Yield Telecom Media & Technology Sector ETF | XHYT | Telecom, Media, Technology, Communication Services |
| BondBloxx US High Yield Healthcare Sector ETF | XHYH | Healthcare Services, Facilities, Managed Care, Medical Products, Pharmaceuticals |
| BondBloxx US High Yield Consumer Cyclicals Sector ETF | XHYC | Automotive, Leisure, Real Estate Management, Department Stores, Retail |
| BondBloxx US High Yield Consumer Non-Cyclicals ETF | XHYD | Consumer Goods, Discount Stores, Food & Drug, Restaurants, Utilities |
Historically, corporate debt has been harder to slice into funds than stocks due to the high number of securities and non-electronic trading, making it difficult to diversify and ensure the right level of liquidity. However, the rise of portfolio trading during the COVID-19 pandemic boosted electronic trading volumes for corporate bonds.
BondBloxx’s passively-managed funds track the ICE Bank of America U.S. Cash Pay High Yield Constrained Index. The index consists of about 2,100 bonds, providing enough selection to build out its ETF portfolios. Each ETF consists of 150 to 500 securities with varying maturity dates and credit ratings, providing investors with ample diversification.
New Fixed-Income Strategies
Most equity funds are weighted by market capitalization, resulting in successful companies holding the most significant pieces of the pie. In contrast, fixed-income funds are overweight in companies with the most debt, exposing investors to less creditworthy issuers. Passive funds also typically exclude more than half the total universe of securities.
The most popular approach to solving these problems has been a move toward actively-managed bond funds. Asset managers with the latitude to build their own portfolios can select bonds or loans based on each issuer rather than looking at their total indebtedness. They can also target specific outcomes, such as higher yield or lower risk.
BondBloxx’s new ETFs offer another potential solution to these problems. While the funds use a modified market value-weighted index, the concentration in individual sectors enables investors to avoid industries with deteriorating fundamentals and seek out those with solid or improving fundamentals, enabling potentially better returns.
Be sure to check our Portfolio Management Channel to learn more about different portfolio rebalancing strategies.
The Bottom Line
BondBloxx’s new sector-specific fixed-income ETFs open the door to a broader range of strategies. In combination with actively-managed fixed-income ETFs, today’s retail investors can significantly improve their fixed-income allocations through better targeting and avoid many of the common pitfalls of conventional bond funds.
Make sure to visit our News section to catch up with the latest investing news.
