The Federal Reserve has published its first disclosures pertaining to the Secondary Market Corporate Credit Facility (SMCCF), which it established on 23 March as part of its attempt to ease the economic and financial consequences of the coronavirus pandemic.
This decision saw the bank appoint BlackRock, without formal tender, to manage its purchase of bonds, mortgage-backed securities and ETFs in a move reminiscent of the Global Financial Crisis, during which the asset manager was brought on board to manage assets from Bear Stearns and American International Group.
The first monthly report has revealed that, as of 19 May 2020, the Fed has purchased $1.3bn of ETFs from five different fund houses: iShares, State Street Global Advisors, VanEck, Vanguard and Xtrackers.
Questions were raised when BlackRock was appointed, with many pointing to the fund house benefiting from fees, if the Fed were to buy its own ETFs.
However, BlackRock have asserted the funds are being purchased at the direction of the Fed and it will not receive fees for purchases as part of the SMCCF.
To date, 7,504,884 shares from eight ETFs have been purchased by BlackRock from its own ETF provider iShares, according to the report, for a combined market value of $630m.
Of the 15 ETFs bought, the most expensive comes from the firm charged with responsibility for the purchasing programme: iShares iBoxx $ High Yield Corporate Bond ETF, which comes with a gross expense ratio of 0.49%, well above the average 17.5bps.
Below, Investment Week details the ETFs purchased by BlackRock on behalf of the Federal Reserve revealed in this first disclosure:
iShares 0-5 Year High Yield Corporate Bond ETF
Number of holdings - 598
Shares purchased - 171,837
Market Value - $7.1m
Benchmark - Markit iBoxx USD Liquid High Yield 0-5 Index
Offering exposure to short-term USD-denominated high yield corporate bonds with remaining maturities of less than five years, this fund is comprised of mostly BB (45%) and B rated (34%) credit, with 50% reaching maturity in 3-5 years. It has a gross expense ratio of 0.3%
iShares 0-5 Year Investment Grade Corporate Bond ETF
Number of holdings - 1,768
Shares purchased - 198,064
Market value - $10.2m
Benchmark - Markit iBoxx USD Liquid Investment Grade 0-5 Index
Offering exposure to short-term USD-denominated investment grade corporate bonds with remaining maturities of less than five years, this fund is comprised of mostly A (45%) and BBB rated (37%) credit, with a relatively even spread of maturities between 0-5 years, although the largest portion is 3-5 years (32%). It has a gross expense ratio of 0.06%.
iShares Broad USD High Yield Corporate Bond ETF
Number of holdings - 1,796
Shares purchased - 104,979
Market value - $3.9m
Benchmark - ICE BofAML US High Yield Constrained Index
Offering broad exposure across the USD-denominated high yield corporate bond market, this fund is comprised of mostly BB (48%) and B rated (37%) credit, with the majority of maturities falling between 3-5 (29%) and 5-7 years (26%). It has a gross expense ratio of 0.22%.