Rolle im Portfolio
The iShares Barclays Capital US Treasury Bond 7-10 ETF offers investors exposure to a highly liquid segment of the US government bond market. 10y US Treasuries are one of the few undisputed benchmarks of global reference in fixed income markets. They are regularly issued by the US Treasury and are heavily traded in international markets. This high degree of liquidity and tradability, alongside the perceived near-zero probability of a US government default, also make 10y Treasuries one of the safe-havens of choice for international investors.
The most obvious use for this ETF would be as a core fixed income holding in a US-centric or global investment portfolio. However, European investors should take into account that this ETF is a USD-denominated product whose performance would be affected by foreign exchange valuations. As such, for a non-US-based investor, gaining exposure to the 10y segment of the US Treasury market is also likely to be rationalised in terms of a hedging strategy (e.g. a vehicle to counter exposure risks to other geographical areas) rather than for the benefits of a regular cycle of coupon income distribution. In that case, we can see this ETF playing a tactical rather than strategic role within the investment portfolio and would be better suited as a satellite component.
Fundamentale Analyse
The US economic recovery is proceeding at a moderate pace. Domestic private consumption and investment have improved and the housing market has strengthened. Labour market conditions have also shown positive signs, but the jobless rate still remains elevated (e.g. above 7.5% as we write). A key downside domestic risk to the US economic growth outlook going forward stems from the tightening of fiscal policy underway. Meanwhile, on the external front, the situation in the Eurozone remains a source of concern, while the slowdown in emerging market economies has become an additional worry.
Against this backdrop, the US Federal Reserve (Fed) remains committed to a very accommodative conventional monetary policy stance for a protracted period. Fed Funds have been held in a 0.00-0.25% target range since December 2008, and they should remain unchanged as long as unemployment remains above 6.5% and inflation between one and two years ahead does not deviate by more than 0.50% from the Fed’s long-term price stability target of 2.0%. Despite the pick-up in private consumption, the absence of wage-led pressures and the fall in raw material prices are helping to keep inflationary pressures at bay, while inflation expectations remain subdued.
Additional policy stimulus has come via a large-scale programme of asset purchases, known as quantitative easing or QE, designed to exert downward pressure on long-term interest rates and facilitate cheap financing to economic agents. It is estimated that the Fed holds well over USD 2Trn of US Treasuries, agency debt and mortgage backed securities (MBS). The latest phase of QE, which started in September 2012, has seen the Fed buying USD 40bn of MBS and USD 45bn of long-dated US Treasuries every month. All the while, the Fed maintains a policy of reinvesting all principal payments from its holdings into MBS and US Treasuries at auction.
Indexkonstruktion
The Barclays US Treasury 10y Term Index is produced by Barclays Capital. The objective of the index is to measure the performance of fixed-rate 10y-dated government bonds issued by the US government until they fall under 7 years to maturity. Term indices are a Barclays Capital in-house indexing methodology which uses standard market capitalisation weighting on a bond universe made up of issues near their original term rather than selecting all bonds in the maturity bracket. The index is calculated on a daily basis using mid-market prices from the Barclays Capital market makers at 15:00 New York time. The index is reviewed and rebalanced once a month on the last calendar day of the month. At rebalancing, bonds eligible for inclusion in the index must have an original term of between 9 and 10.5 years, a minimum calculated life of 7 years and a minimum outstanding of USD 5bn. The index must contain a minimum of six bonds at rebalancing. Income from coupon payments is reinvested monthly at rebalancing. Income received during the month is invested until rebalancing at 1M USD Libor -15bps set at the end of the month for the next month.
Fondskonstruktion
iShares uses physical replication to track the performance of the Barclays Capital US Treasury 10 Term Index. This ETF was launched in December 2006 and is domiciled in Ireland. This is a USD-denominated investment vehicle. This ETF distributes dividends on a semi-annual basis, with historical data showing a May-November payment pattern. The restricted bond universe that Barclays Capital uses to construct its term indices tipically allows iShares to fully replicate the basket of constituents. However, the statistical weighting of individual components may differ slightly between fund and index and this may have an impact on the fund’s tracking performance at the margins. Performance data on cumulative returns basis shows a good tracking history. A snapshot at the time of this writing (e.g. mid June 2013) showed that the ETF basket was made up of 12 US medium-to-long-dated government bonds, with weightings ranging from 3% to 10%. iShares may engage in securities lending in order to optimise the ETF’s tracking performance. BlackRock acts as investment manager on behalf of iShares. The amount of securities that can be lent is capped at 50% per fund. Lending operations are hedged by taking UCITS-approved collateral greater than the loan value and by revaluing loans and collateral on a daily basis. The collateral is held in a ringfenced account by a third party custodian. The degree of overcollateralisation is a function of the assets provided as collateral, but typically ranges from 102.5% to 112%. Lending revenue is split 60/40 between the ETF and BlackRock, respectively.
Gebühren
The annual total expense ratio (TER) for this ETF is 0.20%. Additional costs potentially borne by investors and not included in the TER include bid/offer spreads and brokerage fees when buy/sell orders are placed for ETF shares.
Alternativen
iShares was quick off the mark with regards to providing European investors with ETFs tracking the US Treasury market, managing to capture the bulk of market share in the process. As we write, iShares remains the dominant force in this particular segment. However, since 2009 other European ETF providers have come to the marketplace in a bid to challenge iShares’ supremacy.
First off was Credit Suisse (CS) with the iBoxx USD Government 7-10 ETF (TER 0.23%), followed by Amundi with the US Treasury 7-10 ETF (TER 0.14%) and UBS with the BarCap US 7-10yr Treasury Bond ETF (TER 0.20%). At this stage, all these products lag iShares by a very substantial margin in terms of assets under management. The CS and UBS products use physical replication, while the Amundi ETF is a swap-based product.
Other European providers such as db x-trackers, Lyxor and SPDR offer ETFs tracking the US Treasury market, either on a broad or maturity-segmented basis. However, as we write none offer an ETF covering the specific 7-10y maturity segment. It is also worth adding that the CS ETF could be merged with the iShares ETF if/when the acquisition of Credit Suisse ETF business by Blackrock is completed.
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