A strong management team and sound investment process underpin iShares 25+ Year Treasury STRIPS Bd ETF's Morningstar Medalist Rating of Bronze. The portfolio maintains a cost advantage over competitors, priced within the second-cheapest fee quintile among peers.  

 The strategy’s management team earns an Above Average People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a considerable underweight position in corporate bonds and debt with 15- to 20-year maturities compared with category peers. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

iShares 25+ Year Treasury STRIPS Bd ETF earns an Above Average Process Pillar rating. Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. The predominant contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The firm's five-year retention rate of 92% also buttresses the rating. Lastly, the process is limited by its parent firm's risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.1 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

The investment strategy as stated in the fund's prospectus is: 

The investment seeks to track the investment results of the ICE® BofA® Long US Treasury Principal STRIPS Index composed of the principal payments of U.S. Treasury bonds (specifically principal “STRIPS”, also known as “Separate Trading of Registered Interest and Principal of Securities”) with remaining maturities of at least 25 years.  The fund will invest at least 80% of its assets in the component securities of the index, and and the fund will invest at least 90% of its assets in U.S. Treasury securities that BFA believes will help the fund track the index.  

 This strategy has a 4.1% 12-month yield, higher than its average peer's 4.0%. While a higher yield may deliver more income, it also tends to indicate higher credit risk. The portfolio has a lower average credit rating of AA, compared with the typical peers' AAA and it holds no non-investment-grade assets, similar to its average peer. Strategies that take on more credit risk tend to be at their best when markets are as well. This risk contributes to strong performance during bull markets at the cost of losing more on the downside. In terms of interest-rate risk, compared with others in the Long Government category, this fund maintains a significantly elevated average effective duration of 26.7 years compared to the category's 16.9 years. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 26.7-year duration, is expected to gain 26.7% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

Above Average

Process

iShares 25+ Year Treasury STRIPS Bd ETF benefits considerably from its team, earning it an Above Average People Pillar rating. There are two managers listed on the fund: James Mauro, Karen Uyehara. Experience on the team is abundant, with 13 years of average portfolio management experience. Together, they manage a total of 114 strategies, with solid long-term prospects. The strategies average a Silver asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

BlackRock offers compelling options across asset classes and vehicles. It earns an Above Average rating for Parent. 
The firm’s approximately USD 8 trillion in assets under management, as of Sept. 30, 2022, gives it unparalleled scale and influence. It is a market-leading index fund provider globally, and its iShares exchange-traded fund franchise offers a low-cost lineup of core funds that investors can use to build a well-diversified portfolio for dirt cheap. The firm can be more adventurous in its ETF launches than some peers, so not everything it launches is appropriate for the masses. As a result, it is likely to have more ETF closures than peers that stick to the basic building blocks.  
The firm’s active fixed-income and multi-asset efforts also stand out as some of the best in the industry. Those benefit from BlackRock’s commitment to building a first-class risk management system via its Aladdin analytics software. The software is also available for sale to other firms and has proved to be a popular option for competitors, a testament to its usefulness. 
More recently, the firm has shifted its focus to ESG offerings and incorporating ESG across its investment lineup, leading to a political backlash in the United States.
BlackRock isn’t the best at everything it tries to do, but retail investors, financial advisors, and large institutions could all build robust portfolios using BlackRock’s products.

Parent

iShares 25+ Year Treasury STRIPS Bond ETF

GOVZ tracks a market-value weighted index of US separate trading of registered interest and principal securities (STRIPS), with remaining maturities of at least 25 years.

On our last update on GOVZ, we gave it a Strong Sell based on our outlook for no rate cuts. GOVZ has underperformed SPY by 80% on an annualized basis and that is one of the largest on record. We look at where things stand and update our thesis.

GOVZ: Zero Rate Cuts And More Pain For Treasury Bonds

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It generally takes a few years for changes in Federal Reserve rates to fully impact bond fund dividends. Bond funds are still benefitting from prior rate hikes. Perhaps by enough to cancel out any future rate cuts. By my estimations, and under current Fed guidance, most bond funds would only start to see declining dividends in 2025, at the earliest.

Estimating The Impact Of Lower Rates On Bond Fund Dividends

iShares 25+ Year Treasury STRIPS Bond ETF provides exposure to the principal portion of Treasury STRIPS. It is a passive ETF that has tracked its index impressively. We review the fund and tell you why the setup for long duration bonds is poor and what alternatives you should consider.

GOVZ: Now Might Be The Worst Time To Go Long, Long Bonds

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The world's largest bond market made a remarkable recovery in November after experiencing difficulties earlier in 2023. It is now on track for its best month since March.

Treasury ETFs on Track for Best Month Since March

GOVZ is exposed to a major duration factor that speculators can use for their portfolio building. GOVZ consists of zero-coupon bonds with a duration of almost 27 years, making it highly sensitive to changes in interest rates. With the current inflationary pressures and the likelihood of higher long-term rates, GOVZ is very risky until rates have likely peaked. Nothing points to the upside for GOVZ as of now.

GOVZ: Not The Time For Extreme Duration

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The market is showing signs of weakness and lacks sustainable upside momentum. The recent sell-off has broken key moving averages, indicating a potential shift in market sentiment.

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Rating agency Fitch downgraded the United States to AA+ from AAA on Aug 1.

ETF Areas in Focus on Fitch Downgrade of Credit Rating

GOVZ is a portfolio of STRIPs, so basically zero coupon bonds with an overall effective duration at 26.73 years. High duration play means a lot of sensitivity to prevailing interest rate expectations, especially long-term rates that are compounded many times over. Markets assume higher structural inflation and rates, which is conservative. But there are ways for long-term rates to go back to lower levels.

GOVZ: Aggressive Duration Play, A Bet On Long-Term Rates

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Treasuries continued to gain momentum to start April as yields slipped to near multi-month lows. The latest batch of data has fueled worries of recession, raising the appeal for Treasuries as a safe haven investment.

How Treasury ETFs Spiked Last Week on a Drop in Yields

While a US recession is widely anticipated, investors and analysts are underestimating its likely severity. Conditions today are remarkably similar to those seen in early 2008, with property prices falling and savings rates extremely low and facing upside pressure.

GOVZ: An Aggressive Bet On A Likely U.S. Depression

A host of factors like jobs reports, easing inflation, and recession fears are pushing yields lower, thereby providing an upside to the Treasury market.

Treasury ETFs Rise on Slowdown Concerns, Lower Yields

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2023 is likely to be a year of pain for risk assets. The economy remains on track to enter recession.

My Best Idea For 2023: 30-Year Treasury A Port In The Coming Storm

GOVZ debuted in September 2020, and has been losing money since. That may explain why we are the first to write about it on Seeking Alpha. However, the current interest rate environment has suddenly made long-term U.S. Treasury ETFs appealing.

GOVZ: For The First Time In This Young ETF's Life, It Looks Appealing

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While there is upward pressure on market rates in 2022, it's not coming from higher net supply. In fact, lower net supply can help to richen government bonds. On top of that, we should see flatter curves over the whole of 2022. We also anticipate some upward pressure on USD Libor.

Rates Outlook: Swap Spreads To See Widening Pressure

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The deficit spending that supported the economy in 2020 is showing up in hot inflation numbers in 2021. While I think the inflation numbers will get better in 2022, I do not believe they will get back to pre-pandemic levels because of owners' equivalent rents and wage gains in the CPI.

Mind The Bond Market

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At the November FOMC meeting, the Fed officially announced that it would begin tapering its bond purchase program, starting in mid-November. When the Fed began tapering its QE3 program over the course of 2014, the coupon supply from the U.S. Treasury was stable, leading to an increase in net supply takedown from the private market.

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After months of decline, Treasuries are back in favor, logging in the best week in a year as inflation fears eased.

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With a much-anticipated jobs report out of the way on Friday, investors are breathing a sigh of relief, as the Federal Reserve is unlikely to begin tapering, despite the strong payroll data. Hiring continued in May, with the addition of 559,000 new jobs, but that figure still wasn't enough to compel the Federal Reserve to discuss tapering [.

Fed Stance Unaffected by Jobs Report as Treasury ETFs Climb

News for iShares 25+ Year Treasury STRIPS Bond ETF ETF (GOVZ)