BlackRock to Start Junk Bond ETF Amid Record Inflows

BlackRock Inc. (BLK), the world’s biggest money manager, is planning a global junk-bond exchange-traded fund after its first high-yield debt ETF grew to include $14.3 billion of assets in four years.

The IShares Global ex-USD High-Yield Corporate Bond Fund will track an index composed of speculative-grade bonds denominated in euros, pounds and Canadian dollars, according to a prospectus filed today with the Securities and Exchange Commission. The fund aims to invest at least 40 percent of its assets in companies located or doing business outside the U.S., the document said.

“Indexing may eliminate the chance that the fund will substantially outperform the underlying index but also may reduce some of the risks of active management, such as poor security selection,” according to the filing from BlackRock.

The fund, which won’t try to beat the index it tracks or position itself defensively when markets decline or appear overvalued, will charge a management fee of 0.55 percent and be overseen by James Mauro and Scott Radell, the prospectus said.

BlackRock’s IShares IBoxx High-Yield Corporate Bond Fund (HYG), which was started in April 2007, has grown to be the world’s largest junk-bond ETF.

ETFs allow individual investors to speculate on debt ranked below investment-grade, less than Baa3 at Moody’s Investors Service and BBB- at Standard & Poor’s, without owning the bonds. Unlike mutual funds, whose shares are priced once daily, ETFs are listed on exchanges and are bought and sold like stocks.

Inflows in 2012

High-yield bond ETFs have reported inflows of $6 billion this year, about 33 percent of the total volume of money flowing into funds that buy the notes this year, according to a March 23 JPMorgan Chase & Co. report. Demand for the bonds has been unprecedented, with investors funneling $23.5 billion into junk funds in the past 16 weeks, said the report, written by analysts led by Peter Acciavatti in New York.

Speculative-grade debt globally has gained 7 percent this year, compared with 3.8 percent during the same period in 2011, according to Bank of America Merrill Lynch index data.

To contact the reporter on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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