IShares Core Total USD Bond Market ETF IUSB casts a wide net to provide broad exposure to U.S.-dollar-denominated bonds. Market-value weighting lends the fund a high-quality focus, which should provide a smoother ride over a full market cycle and strong risk-adjusted performance.

The fund tracks the Bloomberg US Universal Index, which encompasses U.S.-dollar-denominated, taxable bonds across the entire credit spectrum with at least one year until maturity. This index reaches deeper into the credit market than the Bloomberg US Aggregate Bond Index, sweeping in high-yield corporate bonds, emerging-markets bonds, non-ERISA-eligible commercial mortgage-backed securities, 144A securities, and eurodollar bonds. Bonds must pass a minimum size and maturity requirement based on their sub-asset class to be eligible for inclusion. They must also have a fixed coupon rate, except for emerging-markets bonds. The index weights selected bonds by market value.

Market-value weighting tilts the portfolio toward the largest issuer, the U.S. government. The fund tends to hold around 40% of its assets in Treasuries and other government-related bonds, about double the amount held by its average Morningstar Category peer. This large allocation to Treasuries comes at the expense of its allocation to securitized products, which hovers around 15 percentage points below the category average.

The portfolio’s emphasis on Treasuries also translates to an overweighting in high-quality bonds. The recent U.S. government downgrade shuffled a hefty portion of the portfolio to an AA rating from AAA, but it still has a more conservative credit risk profile than its average category peer. This cushioned the fund’s category-relative performance during credit shocks and market downturns. Category peers often take on more credit risk for additional income, which causes this fund to lag when credit risk pays off, such as during the coronavirus recovery period from April through December 2020. 

The past decade’s low interest rates have driven issuance activities toward longer-dated bonds, lengthening the fund’s duration. The recent increase in interest rates and long-term bond yields has started to reverse this dynamic. Because of its longer-than-average duration, this fund has slightly underperformed its average category peer in recent interest-rate shocks. But this trend might not persist in the long run with a higher proportion of shorter-dated bonds issued recently.

Analyst Rating

A more comprehensive exposure to taxable U.S. bonds.

Analyst

Lan Anh Tran

The fund’s broad portfolio provides exposure to a large swath of U.S. bonds, while its quality tilt offers protection during credit shocks. It earns a Process Pillar rating of Above Average.

Above Average

Process

BlackRock boasts a large and experienced team reinforced by sector specialists, supporting personnel, and centralized trading desks, which mitigates key-person risk and underpins an Above Average People rating.

Portfolio management is a team effort at BlackRock, so the named managers interact with a wider team of traders and managers to execute the fund’s day-to-day operations. A separate index analytics team researches and helps prepare for corporate actions and index changes. Most of the portfolio management process is automated as BlackRock’s Aladdin platform and its optimization algorithm fulfills much of the portfolio management tasks. Portfolio managers focus on keeping portfolio statistics within tight tracking targets, utilizing discretion when there’s an opportunity for added value. BlackRock’s risk team works continuously with the managers to address rising challenges and improve processes, in addition to conducting regular formal reviews.

James Mauro and Karen Uyehara oversee the broad team of fixed-income managers responsible for North American iShares index funds. Mauro joined BlackRock in 2010 from State Street, while Uyehara came from Western Asset the same year.

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 Core Total USD Bond Market ETF

IUSB tracks a broad Barclays index of USD-denominated taxable bonds. The index is market value weighted.

IUSB tracks the Bloomberg U.S. Universal Index (LC07TRUU) which includes investment-grade and high-yield U.S. dollar-denominated bonds. The fund is overweight Treasuries and Agency MBS bonds (57% of holdings) and has a duration of 5.8 years, making it sensitive to interest rates. The ETF has a low expense ratio (0.06%) and low volatility (annualized volatility of 6.4%).

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iShares Core Total USD Bond Market ETF offers exposure to the entire bond market, including junk bonds. IUSB has a similar performance to the largest "total" bond market ETF, BND, with a slight outperformance over the past 5 years. IUSB is a suitable choice for passive investors who prefer to buy and hold a broad market bond index.

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iShares Core Total USD Bond Market ETF is worth considering as stocks become more volatile and bonds are catching a bid. The IUSB ETF provides broad access to the total U.S. Dollar-denominated bond market with a low expense ratio and a 5.22% yield. The fund's diversified holdings and focus on AAA-rated securities make it an enticing option for investors seeking income potential and risk management.

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IUSB: Broad, Diversified Bond Fund, Growing 4.2% Yield.

IUSB: Broad, Diversified Bond Fund, Growing 4.2% Yield

The high duration of IUSB means that in a time of changing rates, IUSB will trade together with equity markets which have downside on higher rates. Fixed income is supposed to provide some protection in normal markets, but IUSB doesn't accomplish this.

IUSB Is Too Correlated To Equity Markets

You know rates are rising, so don't invest in something where it appears further rate hikes aren't priced in. IUSB hasn't any credit risk, but it does have duration risk.

IUSB Has Minimal Credit Risk, But Duration Is A Problem

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News for iShares Core Total USD Bond Market ETF ETF (IUSB)