Blackrock, one the world’s leading providers of investment and advisory services, announced on Wednesday, February 15, that it has launched an exchange-traded fund (ETF) that tracks investment-grade CMBS. The CMBS fund, iShares Barclays CMBS Bond Fund, is the first such fund to track the CMBS market. Because it’s not actively managed, the fund carries only a 25-basis-point annual management fee. An ETF is similar to a mutual fund in that it holds a portfolio of investments whose values are determined daily and it trades on major exchanges. The CMBS fund trades on the NYSE, making it accessible by individual investors.
The CMBS fund, which was launched on Tuesday, holds positions in 27 CMBS transactions with an average S&P rating of A-. Its biggest holding, which makes up 5.1% of its portfolio, is comprised of bonds from the Aaa-rated class of GS Mortgage Securities Corp. II, 2006-GG8. The fund, which is expected to grow in size over time, will invest only in public, investment-grade CMBS from deals larger than $300 million each. Individual tranches must be at least $25 million.
“This is a fascinating development! A colleague of mine recently commented that, in general, individual investors are shut out of the CMBS investment market, which is disappointing as the risk-adjusted yield on CMBS is very attractive relative to other fixed-income products,” commented Michael D. Sneden, Executive Vice President of ValueXpress. “We have previously evaluated the CMBS in the EFT, and although they have been downgraded, they all should be “money good” through maturity (right now the holdings have an expected life of about 3.5 years).” The current yield on the EFT is about 3.0%. Click here for information on the ETF.