In a recent episode of “Behind the Ticker,” Joanna Gallegos, co-founder of BondBloxx, shares her extensive background in ETFs and the innovative fixed income strategies her firm employs. Gallegos, who has been in the ETF industry her entire career, began at Barclays Global Investors during the early days of iShares before moving to JP Morgan to help start their ETF business. She co-founded BondBloxx in October 2021 with a team of experienced ETF professionals from firms like BlackRock, Vanguard, and JP Morgan, aiming to address the underdevelopment of fixed income products in the ETF market.

Gallegos explains that BondBloxx was created to bring more precision to fixed income investing through ETFs. The firm’s product line focuses on high-yield sector and credit rating ETFs, offering a range of tools that allow investors to tailor their exposure more precisely. The company identified a gap in the market for more specific fixed income products, particularly in the high-yield space, where traditional broad market exposures were no longer sufficient for the evolving financial landscape.

One of the standout products discussed is the BondBloxx CCC Rated US High Yield Corporate Bond ETF

. This ETF provides diversified exposure to over 220 bonds in the CCC rating category, which typically comprises about 10-11% of a broad high-yield index. Gallegos highlights that XCCC offers investors a significant yield pickup, with yields around 12%, and has shown impressive price appreciation in 2023. This ETF is designed to complement broad high-yield exposures by allowing investors to add a higher concentration of CCC-rated bonds, benefiting from their higher yields and potential price appreciation as interest rates decline.

Gallegos addresses common misconceptions about CCC-rated bonds, emphasizing that the current market fundamentals for high-yield bonds are strong, and the overall default rates are not above historical norms. She explains that the diversified nature of XCCC, with hundreds of bonds, mitigates individual default risks and offers a more stable investment compared to picking individual high-yield bonds. The ETF’s monthly rebalancing ensures it stays aligned with the ICE BofA CCC & Lower US High Yield Constrained Index, providing consistent exposure to the target credit rating.

For advisors and investors, Gallegos suggests that XCCC can be a valuable addition to an existing high-yield allocation, rather than a replacement. It allows investors to lean into the higher yield opportunities within the high-yield spectrum, especially in an environment where rates are expected to remain high for longer. This approach can enhance overall portfolio yield and performance, making XCCC a strategic tool for optimizing fixed income investments.