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BlackRock’s new low-cost junk ETF to rival its bond behemoth

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Not content with running the world’s largest junk-bond ETF, BlackRock is trying to entice investors with a low-cost alternative.

The iShares Broad USD High Yield Corporate Bond ETF (USHY) will give investors exposure to junk-rated debt for less than half the cost of its flagship high-yield fund, the iShares iBoxx $ High Yid Corp Bond ETF (HYG), according to a statement from the company. That’s lower than any similar fund around the world, data compiled by Bloomberg show.

“By expanding the range of high-yield choices available, we believe that investors will use combinations of strategies to manage their high-yield exposure,” said Steve Laipply, head of fixed-income strategy for the firm’s U.S. ETF business. “An investor who has a longer investing horizon may use USHY for a core allocation and HYG to tilt that allocation based on market conditions.”

BlackRock’s new fund, which charges 22 basis points, supplants Deutsche Bank’s Xtrackers USD High Yield Corporate Bond ETF (HYLP) as the cheapest junk-debt ETF.

That fund, which has an expense ratio of 25 basis points, has taken in almost $250 million since it started last December.

USHY, as its name suggests, is a broader slice of the high-yield market than some other funds. It will track the Bank of America Merrill Lynch US High Yield Constrained Index of 1,873 securities, almost twice the number of bonds included within HYG’s underlying benchmark.

“USHY allows us to reach a growing investor base that desires greater high-yield opportunities across credit quality, issuer size and industry,” said Laipply.

Bloomberg News