iShares Corporate Bond Index: February 2022 fund update

• 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 the Markit iBoxx GBP Non-Gilts Overall TR Index since launch in 2010
• The fund is on our 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 of 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

Allesandro Ferrante is a portfolio manager within BlackRock's Systematic Fixed Income Group. He’s taken over from Matthew Jackson who was the previous lead manager. Jackson's now become responsible for other funds within the iShares range which have a greater focus on high yield. Ferrante’s focus is on corporate credit alongside both active sterling and active global credit funds. 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 1,147 holdings and is predominantly made up of UK, US and Supranational issuers.

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 in high-yield bonds which increases 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 currently the largest asset manager in the world, running $10 trillion globally as of January 2022. The company was founded in 1988 by eight partners including current CEO Larry Fink and is known for both active and passive strategies across the world. Employees at BlackRock are encouraged to hold shares in the company so that they are engaged with helping the company perform well and grow. The iShares brand represents BlackRock's family of index tracking and exchange-traded funds.

As one of the world's largest asset managers, and with lots of resource and knowledge under its belt, BlackRock aims to continue to drive further development in this part of the investment market. Being such a large player in the index tracking arena gives BlackRock unique access to the marketplace, which can help reduce trading costs.

Over recent years BlackRock has increased its drive towards stewardship and promoting Environmental Social and Governance (ESG)-based products. This involves direct dialogue with companies on governance issues that have a material impact on sustainable, long-term financial performance. While the 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 this fund works 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 0.11%. 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 aims to track the Markit iBoxx GBP Non-Gilts Overall TR Index and has performed well since launch in 2010*. 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.

Corporate bonds are typically higher risk and more volatile at times than safer bond investments like gilts. Their prices have tended to fluctuate due to wider economic factors like changes in interest rates.

Given Blackrock’s size, experience and expertise running index tracker funds, we expect the fund to continue to track the index well in the future. However, past performance isn’t a guide to future returns.

A glance at the five-year performance table below shows that fund performance is relatively similar to the IA sterling corporate bond sector. In some years the fund has either beaten or underperformed the sector. Though this is not the aim of the fund, given its purpose is to track a specific benchmark.

Past performance is not a guide to the future. Source: *Lipper IM to 31/01/2022.

Find out more about iShares Corporate Bond Index including charges

iShares Corporate Bond Index Key investor information