Asset class: Fixed Income

Fixed Income: Categories, Focuses, and Niches

Fixed Income ETFs, investments in various debt securities, are structured around three core aspects: Category, defining the debt type and issuer; Focus, assessing the creditworthiness; and Niche, detailing the maturity and special characteristics of the debt.

Category

The Category describes the types of issuers and securities targeted by a fund. The field

consists of a primary category and a modifier, separated by a comma (e.g., “Government, Inflation-linked”).

The primary category broadly describes the issuer.

Corporate – debt issued by a business without government backing

Government – debt issued or guaranteed by a globally recognized government, including subsidiary agencies, local authorities, or supranational entities

Broad Market – debt from both corporate and government issuers

The modifier provides further details about the type of issuer or debt. A fund that targets multiple issuer types or debt structures or has no specific target will carry the modifier “Broad-based”.

Agency – debt issued by a subsidiary agency of a national government, including a private organization

backed by the credit of a national government.

Asset-backed – debt backed by a pool of loans or similar financial assets. Funds that exclusively target mortgage-backed securities should receive the Mortgage-backed modifier.

Bank loans – debt issued by bank lenders to corporate borrowers. Bank loans are typically senior, secured, floating-rate, and/or sub-investment-grade.

Convertible – corporate debt that may be exchanged for common equity under pre-determined conditions, typically at the option of the debtholder

Inflation-linked – debt with returns indexed to a widely accepted measure of price inflation in the currency of denomination

Local authority/municipal – debt issued by a subnational authority, such as a city, state, or provincial government

Mortgage-backed – debt backed by a pool of mortgage loans

Non-native currency – debt issued by a government body in a currency other than its own, typically within an emerging market

Preferred – non-voting corporate equity with prioritized dividend payments, senior to common equity but subordinate to debt in the event of liquidation

Treasury – debt issued by a sovereign national government and secured by the full credit of that government

Focus

The Focus describes the creditworthiness of the debt targeted by a fund.

Investment grade – debt rated BBB-/Baa3 or above by a recognized credit rating agency.

High yield – debt rated below Investment Grade or not rated.

Any fund targeting both Investment Grade and High Yield debt will carry the designation Broad Credit.

Niche

Niche serves to describe the funds’ maturity time horizons. 

Ultra-short term – weighted average maturity of one year or less

Short term – weighted average maturity between one and three years

Intermediate – weighted average maturity between three and ten years

Long term – weighted average maturity of more than 10 years

Floating rate – interest rate resets periodically, no maturity range required

Broad maturities – targets a wide maturity range that could include long- to ultra-short-term securities