Rolle im Portfolio
The iShares $ Treasury Bond 1-3 UCITS ETF offers investors exposure to the performance of the short-dated maturity segment of the US government bond market. This ETF can work as part of an investment portfolio with a US geographical bias or as a hedge to non-US fixed income holdings. This is a USD-denominated product, and so foreign exchange considerations have to be factored in.
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 proposition to equitise USD cash holdings in investment portfolios. However, investors making use of this ETF for such purpose should pay attention to the potential for capital losses arising from exposure to interest rate risk.
This ETF can also play a tactical role as a satellite holding to manage interest risk exposure of fixed income holdings – US-centric – within an investment portfolio. The ETF’s focus on the short-dated segment of the curve allows for duration-shortening plays at times of rising interest rates. This usage would be best suited for investors with an ability to comprehensively monitor economic developments and their implications for the US Federal Reserve monetary policy.
Fundamentale Analyse
The US economy has staged a strong and sustained recovery. 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 pushing towards 5.0%, down from a peak of 10% in 2010. Meanwhile, the fall in commodity prices are keeping inflation very subdued and, although wage growth has picked up somewhat in 2015, long-term inflation expectations remain well anchored.
Against this backdrop, the US Federal Reserve (Fed) retains its accommodative monetary policy stance. Fed Funds have been held in a 0.00-0.25% target range since December 2008 and, despite expectations for policy tightening to be around the corner, are likely to remain at low levels for a protracted period. The Fed has clearly signalled that any tightening would be undertaken very gradually.
The Fed holds some USD 2.5Trn of US Treasuries and agency debt on its balance sheet courtesy of QE. The last phase of asset purchases ended in October 2014. All the while, the Fed maintains a policy of reinvesting all principal payments from its holdings into US Treasuries at auction.
Expectations for a protracted loose conventional policy stance remain well entrenched, not least given the downside risks that EM economies now pose to the global economic outlook. This has provided support to the US Treasury curve, although this has been more noticeable at the longer-end of the maturity spectrum.
Indeed, short-term yields, though still at very low levels, have steadily drifted higher since 2014 from the 2012-13 lows. In the mid- to long-run, the path of least resistance for US Treasury yields points north, particularly so for short-dated maturities once the Fed effectively signals a hike in rates. This would be the time when the tactical use of this ETF as a duration-management tool would 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 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 universe of high liquid bonds that Barclays Capital uses to construct its term indices typically allows iShares to fully replicate the basket of constituents. However, the statistical weighting of individual components may differ slightly between fund and index. On this account, the ETF factsheet prefers to describe the replication methodology as sampling. Irrespective, the ETF faithfully replicates the index’s key risk characteristics (e.g. maturity distribution). A snapshot at the time of this writing (late October 2015) showed that the ETF basket was made up of 33 US short-dated government bonds, with weightings ranging from 2.5% to 3.5%. iShares engages in securities lending in order to optimise the ETF’s tracking performance. BlackRock acts as investment manager on behalf of iShares. The ETF can lend out up to 100% of NAV. The average on loan for this ETF for the year to end-June 2015 was 47% for an average return of 8bps. Lending operations are backed 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 62.5/38.5 between the ETF and BlackRock, respectively.
Gebühren
The annual ongoing charge for this ETF is 0.20%, which is the top-end of the fee range for this market exposure. Additional costs potentially borne by investors and not included in the ongoing charge 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 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 clear market leader for this particular market segment, as measured in AUM terms relative to all competing ETFs.
Alternatives include the SPDR Barclays 1-3y US Treasury Bond ETF (physical; ongoing charge 0.15%), UBS BarCap US 1-3y Treasury Bond ETF (physical; 0.20%), db x-trackers iBoxx USD Treasury 1-3 ETF (synthetic; 0.15%) and Lyxor iBoxx USD Treasuries 1-3y (synthetic; 0.165%).
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