"We have no plans to invest in the new BondBloxx BBB products at this time since MERS does not currently allocate to U.S. investment-grade fixed income," said Paul Van Gilder, senior investment officer and portfolio manager at the $16 billion pension fund, in a Jan. 25 email.
While MERS has a small amount of exposure to U.S. high-yield credit, "we don't think that investment grade right now offers an attractive risk-return profile," Van Gilder said in a follow-up phone interview.
However, if the pension fund's thinking regarding U.S. investment-grade fixed income changes, Van Gilder said it's possible that MERS might consider investing in the three new ETFs. In general, MERS considers the BBB area to be the segment of the U.S. investment-grade market that has the most attractive risk-return profile, he said.
The three new ETFs are the BondBloxx BBB Rated 1-5 Year Corporate Bond ETF, the BondBloxx BBB Rated 5-10 Year Corporate Bond ETF and the BondBloxx BBB Rated 10+ Year Corporate Bond ETF.
"So now that those products are out, we'll be able to do research on that market segment to see if it's something that makes sense for us to include in our asset allocation model," Van Gilder said
Many of the current ETFs offering exposure to U.S. investment-grade fixed income tend to skew toward higher credit ratings, he said.
"And as a result, there's low credit spreads, low yields above Treasuries," Van Gilder said. "And triple-B being a higher risk segment, we think actually offers potentially more value than the rest of the U.S. investment-grade market."
As of Dec. 31, MERS held shares of 12 different BondBloxx ETFs with a market value of $721 million across the U.S. Treasury, emerging markets debt and high-yield asset classes, Van Gilder said in the email.
"BondBloxx has gone further than … most other fixed-income ETF issuers in slicing and dicing the fixed-income market," he said in the interview, adding that, for example, BondBloxx offers a variety of different U.S. Treasury ETFs across the duration spectrum, "so we're able to use those products to tilt our portfolio duration to (the) precise way that we want."
BondBloxx responded in a Jan. 26 statement provided from a spokeswoman, saying: "Investors' appetite for different fixed-income exposures changes through market cycles and environments. At BondBloxx, we recognize that diversity of investor opinion, and we seek to empower their investment decisions with unique exposures, like we have done with these three BBB products."
BondBloxx "is the first ETF issuer to focus solely on fixed income," the statement added.
The new ETFs bring the total number of BondBloxx ETFs to 23, the spokeswoman said. As of Jan. 25, BondBloxx had $2.7 billion in total assets under management, entirely in ETFs, she said.
