Market Overview

The First S&P 500 Bond ETF Is Here

The First S&P 500 Bond ETF Is Here

About 25 years after the debut of the SPDR S&P 500 ETF (NYSE: SPY), the exchange traded funds universe finally has a bond fund based on the S&P 500. The ProShares S&P 500 Bond ETF (NYSE: SPXB) debuted Thursday.

The latest ETF from ProShares, the largest issuer of inverse and leveraged ETFs, tracks the S&P 500/MarketAxess Investment Grade Corporate Bond Index. That benchmark holds some of the largest and most liquid corporate bonds issued by S&P 500 member firms.

What Happened

The S&P 500 is one of the world's most widely followed equity indexes. There are over $7.8 trillion in global assets benchmarked to the index, according to ProShares data. The world's two largest ETFs, SPY and the iShares Core S&P 500 ETF (NYSE: IVV), track the S&P 500. Those ETFs have about $395 billion in combined assets under management and are the only two ETFs trading in the U.S. with over $100 billion in assets.

“We believe SPXB will be an attractive option to investors considering bond ETFs,” Michael Sapir, co-founder and CEO of ProShare Advisors, said in a statement. “SPXB offers the most liquid, high-quality bonds issued by companies in the S&P 500, the widely known and most-used securities benchmark.”

Why It's Important

The S&P 500/MarketAxess Investment Grade Corporate Bond Index, SPXB's underlying index, features 1,000 components and an effective duration of 7.41 years. The weighted average maturity of bonds in the index is 11.2 years and the benchmark has a yield to maturity of 3.95 percent.

Only bonds with a minimum maturity of 2.5 years and a minimum credit rating of BBB- are eligible for inclusion. About two-thirds of SPXB's holdings are rated A-, BBB+ or BBB. None of SPXB's holdings exceed weights of 0.68 percent.

What's Next

“Broad market trends have been supporting a shift toward bond ETFs,” according to ProShares. “While allocations to mutual funds and individual bonds remain high, trends like investors’ demand for transparency, advisors’ need for scalability and efficiency and a general fee consciousness have contributed to a 10-year compound annual growth rate of 31 percent in bond ETF assets.”

Top 10 issuers in SPXB include Goldman Sachs Group Inc. (NYSE: GS), Verizon Communications Inc. (NYSE: VZ) and Apple Inc. (NASDAQ: AAPL).

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