Rolle im Portfolio
The iShares $ Treasury Bond 1-3yr UCITS ETF offers investors exposure to the performance of the short-dated maturity segment of the US government bond market. Non-US-based investors have to take into account that this is a USD-denominated financial product. As such, it is likely to work best either as part of an investment portfolio with a US geographical bias or as a hedge to non-US fixed income holdings. In either case, but particularly so if the ETF is to be used tactically, foreign exchange considerations would have to be factored in investment calculations.
The ETF’s short-dated maturity bias, the choice of highly liquid instruments and the perceived near-zero chance of a US sovereign default, make this ETF a low-risk candidate to equitise USD cash holdings in core portfolios of non-US-based investors. Current fundamentals remain characterised by ultralow yields. However, the underlying demand for safety of the past years has allowed this fund to post nominal returns above key US money market rates.
This ETF can also play a tactical role as a satellite holding to manage interest risk exposure of fixed income holdings – preferably US-centric – spanning the entire yield curve. The ETF’s focus on the short-dated segment of the curve effectively allows for duration-shortening plays at times of rising interest rates. This would be best suited for institutional investors as it calls for comprehensive monitoring of economic developments and their implications for the US Federal Reserve monetary policy.
Fundamentale Analyse
The US economic recovery has gathered speed over the past year, with the growth blip in Q1-14 explained on very adverse weather conditions. Domestic private consumption and business investment have improved and the housing market has strengthened. Labour market conditions have also shown consistent positive signs, with the jobless rate at 6.7% by end Q1 2014, down from a peak of 10% at the height of the crisis in 2010. A downside domestic risk to the US growth outlook going forward stems from the tightening of fiscal policy underway, though this is now on a diminishing trend. Meanwhile, on the external front, the situation in some emerging markets has now become a bigger concern that that of the Eurozone. The absence of domestic wage-led pressures and the fall in raw material prices are keeping current inflation at low levels, while longer-term inflation expectations remain well anchored.
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 are likely to remain unchanged for a protracted period, even after unconventional measures such as QE comes to an end.
It is estimated that the Fed holds well over USD 2Trn of US Treasuries, agency debt and mortgage backed securities (MBS) on its balance sheet courtesy of the various tranches of QE. Its latest phase, which started in September 2012, saw the Fed buying USD 40bn of MBS and USD 45bn of long-dated US Treasuries every month. However, on account of the improving macroeconomic outlook, the Fed announced in December 2013 a progressive decrease in the level of monthly asset purchases. As of this writing (e.g. early May 2014), the Fed has reduced the level of monthly asset purchases by USD 40bn to USD 45bn, with further reductions expected throughout 2014. All the while, the Fed maintains a policy of reinvesting all principal payments from its holdings into MBS and US Treasuries at auction.
Despite QE tapering, expectations for a protracted ultra-loose conventional policy stance remain well entrenched. This is effectively providing solid support to the front-end of the US Treasury curve. And yet, the path of least resistance for US Treasury yields only points strongly north in the medium to long run. In fact, with the economy on an upward trend, we will reach a point when talk of higher interest rates will become inevitable. This would hurt front-end valuations, but it will be also the time when the tactical uses of this ETF as a duration-management tool will become handy.
Indexkonstruktion
The Barclays US Treasury 1-3y Term Index is produced by Barclays Capital. The objective of the index is to measure the performance of short-dated fixed-rate government bonds issued by the US government. 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 1.25 and 3.25 years, a minimum calculated life of 1.25 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 1-3 Term Index. This ETF was launched in June 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 March-September 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. Historical performance data shows that tracking difference has been kept in a fairly tight range over the lifetime of this ETF. A snapshot at the time of this writing (e.g. early May 2014) showed that the ETF basket was made up of 31 US short-dated government bonds, with weightings ranging from 1.5% to 5.5%. 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% of AUM per fund. The average on loan for this ETF in 2013 was just shy of 46%. 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. There are also rebalancing costs whenever the index changes composition.
Alternativen
iShares was quick off the mark with regards to providing European investors with European-domiciled ETFs tracking the US Treasury market, managing to capture the bulk of market share in the process. As we write, iShares remains the overwhelming dominant force in this particular market segment.
Alternatives to this iShares ETF include the SPDR Barclays 1-3y US Treasury Bond ETF (TER 0.15%), the db x-trackers iBoxx USD Treasury 1-3 ETF (TER 0.15%), the Lyxor iBoxx USD Treasuries 1-3y (TER 0.165%), the Amundi US Treasury 1-3 ETF (TER 0.14%) and the UBS BarCap US 1-3y Treasury Bond ETF (TER 0.22%).
As of this writing, all these products lag the iShares ETF by a very substantial measure in AUM terms. It is worth noting that these ETFs from db x-trackers, Amundi and Lyxor are synthetic (e.g. swap-based), while the UBS ETF employs physical replication.
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