iShares Corporate Bond Index: February 2021 fund update

Alexander Watkins | Thu 25 February 2021

The links in this article will take you to Hargreaves Lansdown’s main website for more information. Please be aware that if you wish to join any of the benefits in your company Plan you must return to this website to apply.

• BlackRock, a pioneer in index investing, has a great record of managing tracker funds
• We view this fund as a good option to get access to a broad spread of sterling (UK) corporate bonds
• The fund has closely tracked its index since it launched in 2010
• The fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The iShares Corporate Bond Index fund offers a way to invest broadly across the corporate bond market with a large allocation towards the UK and US. The fund holds investment grade bonds, meaning they have a credit rating of at least BBB, but excludes gilts which are bonds issued by the UK government. An index tracker fund is one of the simplest methods for investing, and we think this fund could be a great, low-cost addition to a portfolio. Bonds can be a great way to diversify a portfolio focused on shares or other assets, or a more conservative portfolio in need of some income.

Manager

Matthew Jackson is a portfolio manager within BlackRock's Systematic Fixed Income Group. He’s taken over from Duncan Fergusson who previously ran the fund, as Fergusson’s now moved into a leadership role elsewhere within the business. Jackson’s focus is on European High Yield alongside both active sterling and active global credit funds and he manages funds for various clients. While he’s the lead portfolio manager, BlackRock’s team-based approach means there are various members who contribute significantly to the fund’s management.

BlackRock’s global approach allows them to work closely with their teams across the world, helping drive more efficient management of their funds. We have positive conviction in the ability of BlackRock to provide simple and effective tracking options for investors.

Process

This fund aims to track the performance of the broader corporate bond market. It invests in around 1,100 companies and is predominantly made up of UK, US and French holdings which account for 44.55%, 15.04% and 7.40% of the portfolio respectively.

This fund invests in almost every bond in the benchmark. This is known as partial replication, which could help the fund track the index closely without incurring the cost of holding every bond. Bonds that make up a very small part of the index are sometimes not held in the fund as they can be more difficult or expensive to buy and sell. The fund also invests into high-yield bonds which can increase risk.

The fund has tracking error targets, which measure how closely it's tracking its benchmark. These are monitored by BlackRock on a daily and monthly basis to ensure the fund is being run efficiently. The fund can also lend some of its investments to others in exchange for a fee in a process known as stock lending. This helps to keep costs lower.

Since BlackRock’s lending program started in 1981, only three borrowers with active loans have defaulted. In each case, BlackRock was able to repurchase every security out on loan with collateral on hand and without any losses to their clients.

Culture

BlackRock is the largest asset manager in the world. The company was founded in 1988 by eight partners including current CEO Larry Fink. It’s known for both active and passive strategies across the world.

The iShares brand represents BlackRock's family of index tracking and exchange-traded funds. The group is a pioneer in index investing and now offers a large number of index tracker funds covering a wide range of geographies, sectors, and markets. For passive funds, the managers are incentivised to track the index as closely as possible. We think this helps align the company’s interests with its long-term investors.

Over recent years BlackRock has increased its focus on stewardship and ESG (Environmental, Social and Governance) related issues. This involves direct dialogue with companies on governance issues that have a real impact on sustainable, long-term financial performance. While iShares Corporate Bond Index isn't an ESG-specific fund, we view it positively that BlackRock as a group is taking an active approach to stewardship issues.

The team running the fund also work closely with various equity and risk departments across the business. We believe this adds good support and challenge on how to run the fund effectively.

Cost

The fund has an ongoing annual fund charge of 0.12%. We believe this is a reasonable charge when compared with other GBP corporate bond tracker funds. Our platform charge of up to 0.45% per annum also applies.

Performance

The iShares Corporate Bond Index fund has performed well versus its benchmark, returning 5.38% per annum since launch in 2010 as shown in the fund factsheet. As is typical of index tracker funds, it’s fallen behind the benchmark over the long term because of the costs involved. However, this difference has been small due to the strategies used by the BlackRock team.

In some years the fund has tracked the index more closely than in others. On occasion it has even ended up slightly ahead of the index due to the strategies used by the team, although this won't necessarily happen in future and isn’t an aim of the fund.

Given BlackRock's size, experience and expertise running index tracker funds, we expect the fund to continue to track the index well in future, though there are no guarantees on how it will perform.

Past performance is not a guide to the future. Source: Lipper IM to 31/01/2021

Find out more about iShares Corporate Bond Index including charges

iShares Corporate Bond Index Key investor information