JPIE - BINC: Fast Facts After 5 Months In The Market

2023-10-26 15:14:32 ET

Summary

• BlackRock Flexible Income ETF (BINC) is an actively managed bond fund seeking opportunities in all countries and all sectors.
• About 59% of assets are invested in the US, 69% has an investment grade rating, and 59% has less than 5 years to maturity.
• BINC has outperformed PYLD and JPIE since July, but these funds are too new to assess them based on available data.

Strategy and portfolio

BlackRock Flexible Income ETF ( BINC ) is a new actively managed bond fund, listed on 5/19/2023 and paying monthly distributions. It has 897 holdings, a 30-day SEC yield of 5.89% and a net expense ratio of 0.40%. Its objective is to “ maximize long-term income by primarily investing in debt and income-producing securities, with a secondary objective of capital appreciation ”.

As described in the prospectus by BlackRock , the portfolio is “ a combination of fixed-income securities (...) the Fund may invest in other market sectors. The Fund may also gain exposure to fixed income securities through its investments in affiliated investment companies, including other exchange traded funds (...) The Fund may use derivatives, such as futures contracts, options (including, but not limited to, options on futures and swaps) and various other instruments including, but not limited to, interest rate, total return, credit default and credit default index swaps (…) In addition, the Fund may use derivatives and short sales to enhance returns as part of an overall investment strategy or to offset a potential decline in the value of other holdings (commonly referred to as a “hedge”), although the Fund is not required to hedge and may choose not to do so.”.

In short, managers have a free hand to seek opportunities in all countries and all sectors depending on market conditions, and to hedge against currency risks or not. This strategy description is extremely flexible. On the downside, the decision process lacks of transparency and is impossible to backtest.

Some rules capping a few asset categories are disclosed, though. The fund may invest:

• “up to 20% of its assets in U.S.- domiciled, U.S.-registered dollar-denominated investment grade corporate bonds, U.S. Treasury securities, U.S. agency securities and U.S. agency mortgage-backed securities.”
• “up to 10% of its assets in preferred securities.”
• “up to 15% of its assets in collateralized loan obligations.”
• “up to 15% of its assets in floating rate loans.”

Moreover, the average maturity is supposed to stay between 1 and 5 years.

U.S. securities represent 58.9% of asset value. Other countries are below 5%. For clarity, the next chart plots the fund’s geographical allocation excluding the U.S.

The heaviest asset category is Non-US Credit (22.5%), followed by US High Yield Credit (17.2%), collateralized loan obligations (12%) and US Investment Grade Credit (11%). Other categories are below 9%. Collateralized loan obligations (CLO in the chart below) are usually issued by a trust and collateralized by loans that may be rated below investment grade. In the chart, ABS stands for asset-backed securities.

From a credit risk point of view, 68.6% of assets have an investment grade rating (BBB of better).

About 59% of the portfolio’s value has less than 5 years to maturity.

The portfolio has over 800 holdings, but 24.4% of its value is concentrated in the top 10 holdings, listed below. The largest position is in a BlackRock institutional fund.

Competitors

The next table compares some characteristics of BINC and two close competitors:

• PIMCO Multisector Bond Active Exchange-Traded Fund ETF ( PYLD )
• JPMorgan Income ETF ( JPIE )

BINC has been a bit better than its peers at preserving asset value in the last few months (the next chart plots price return from 7/1/2023). However, data history is much too short to assess and compare the strategies regarding price and distributions.

Takeaw ay

BlackRock Flexible Income ETF ( BINC ) is an actively managed bond fund seeking opportunities in all countries and all sectors depending on market conditions. About 59% of assets is invested in the US, 69% has an investment grade rating, and 59% has less than 5 years to maturity. This profile is rather on the safer side for a yield close to 6%. Moreover, BINC has outperformed PYLD and JPIE since July. Nonetheless, these funds are too new, and their strategies are too flexible to assess them based on available data.

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