Correspondence 0001829126-24-001136 from BondBloxx ETF Trust (CIK 0001879238)
BondBloxx ETF Trust (CIK 0001879238)
Date: Feb. 27, 2024 · CIK: 0001879238 · Accession: 0001829126-24-001136
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File numbers found in text: 333-258986, 811-23731
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ROPES & GRAY LLP
THREE EMBARCADERO CENTER
SAN FRANCISCO, CA 94111-4006
WWW.ROPESGRAY.COM
February 27, 2024
Edward B. Baer
T +1 415 315 6328
edward.baer@ropesgray.com
VIA EDGAR
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Attn: Kimberly Browning
Re: BondBloxx ETF Trust (the “Registrant”)
File Nos. 333-258986 and 811-23731
Dear Ms. Browning:
This letter is being filed to respond to the telephonic
comments received from you on December 15, 2023 regarding the staff of the Securities and Exchange Commission’s (the “SEC”)
review of Post-Effective Amendment No. 25 to the Registrant’s registration statement on Form N-1A (the “Registration Statement”)
filed with the SEC on November 16, 2023. The staff’s comments are summarized in bold to the best of our understanding, followed
by the Registrant’s responses. The Registrant’s responses will be reflected, to the extent applicable, in Post-Effective Amendment
No. 37 to the Registration Statement, which the Registrant expects to be filed on or about March 4, 2024. Capitalized terms not defined
in this letter have the meanings assigned to them in the Registration Statement.
Facing Sheet
1. Please explain this statement on the Facing Sheet: “No information contained herein is intended
to amend or supersede any prior filing relating to any other series of the Registrant.”
The Registrant will delete the above mentioned disclosure.
Fund Overview:
BondBloxx IR+M Tax-Aware Short Duration ETF
Investment Objective
2. The “Investment Objective” states: “The BondBloxx IR+M Tax-Aware Short Duration ETF
(the “Fund”) seeks attractive after-tax income, consistent with preservation of capital and prudent investment management.”
Please clarify in plain English the meaning of “attractive.” For example, is it “attractive in the Sub-Adviser’s
view”?
In light of the staff’s comment, the Registrant intends
to revise the first paragraph under “Principal Investment Strategies” as follows:
The Fund is an actively managed
exchange-traded fund (“ETF”) that does not seek to replicate the performance of a specified index. The Fund is newly
organized and invests seeks to achieve its investment objective by investing in a diversified
portfolio of U.S. dollar-denominated municipal and taxable short duration fixed income securities that in the
Sub-Adviser’s (as defined below) view offers relatively attractive after-tax income (i.e., securities that generate a greater
amount of after-tax return than the comparable universe of securities over a specified period of time). The Fund invests,
under normal circumstances, at least 50% of its total assets in municipal securities that pay interest that is exempt from U.S.
federal income tax. These securities may pay interest that is subject to the U.S. federal alternative minimum tax and state and
local income tax for certain taxpayers. The income earned and distributed to shareholders on taxable securities would not be exempt
from U.S. federal, state or local income tax.
3. Please delete the words “prudent investment management” that appear in the “Investment
Objective.”
The Registrant will delete
the above mentioned disclosure.
Fees and Expenses
4. The staff notes disclosure related to investing in the securities of other registered investment companies.
Please consider if the Fund’s Annual Fund Operating Expenses table should include a line item for Acquired Fund Fees and Expenses
(“AFFE”). If the Fund determines an AFFE line item is not required, please confirm supplementally to the staff that to the
extent the Fund has AFFE, AFFE is included in the “Other Expenses” line item.
The Registrant confirms that it has
considered whether an AFFE line item is required based on the Fund’s estimated acquired fund fees and expenses for the first year
of operations and determined that this line item is not required. The Registrant additionally confirms that the Fund’s AFFE are
expected to be less than 0.01% and has therefore included such fees and expenses under the “Other Expenses” line item.
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Principal Investment Strategies
5. Regarding the last paragraph on page 2:
a. Please explain in plain English what steps will be taken if a municipal security in which the Fund
invests loses its tax-exempt status.
The Registrant intends
to revise the last paragraph on page 2 as follows:
Income Research + Management (“IR+M”
or the “Sub-Adviser”) serves as the Fund’s sub-adviser. The Sub-Adviser selects securities for the Fund based on a variety
of factors, including credit quality, maturity, diversification benefits, and the relative expected after-tax returns
of taxable and municipal securities (considering federal tax rates and without regard to state and local income taxes). Consistent with
the Fund’s investment objective, the Fund could continue to hold a security even if the interest on that security changes from being
tax-exempt to taxable. If the Fund should hold a municipal security that loses its tax exempt status retroactively, the Sub-Adviser
will evaluate the after-tax yield of the security relative to the broader universe of securities that the Sub-Adviser follows to determine
whether to continue to hold or dispose of the security. Although the Fund may invest in instruments of any duration or maturity,
the Fund normally will seek to maintain a weighted average portfolio duration of between 1.5 and 2 years. The Fund’s dollar weighted
average portfolio duration and maturity, however, may be longer or shorter at any time or from time to time based on
market conditions (including, among other events or factors, lack of liquidity in the bond markets or periods of high volatility
and reduced liquidity) in the Sub-Adviser’s discretion. For example, the price of a security with a two-year duration
would be expected to drop approximately 2% in response to a 1% increase in interest rates. The Fund’s duration strategy may entail
maintaining a negative average portfolio duration from time to time, meaning the portfolio would tend to increase in value in response
to an increase in interest rates. As part of its tax-aware strategy, the Fund typically sells securities when, in the opinion
of the Sub-Adviser, the anticipated performance benefit justifies the resulting gain. This strategy often includes minimizing the sale
of securities with large unrealized gains, holding securities long enough to avoid short-term capital gains taxes, selling securities
with a higher cost basis first and offsetting capital gains realized in one security by selling another security at a capital loss.
b. Please include a simple example of the impact of interest rate changes on duration (e.g., a 1% interest
rate increase = a change in duration of ___).
See response to Comment #5.a above.
c. Please explain whether the duration is a “dollar-weighted average portfolio maturity” or
something else.
See response to Comment #5.a above. The
Registrant notes that while the Fund may consider maturity, the Fund focuses on duration management.
d. Please explain the extent to which the Fund may deviate from the 1.5-2 year target (keeping in mind
that the term short duration is generally understood to mean a duration of 3 years or less).
See response to Comment #5.a above.
e. Please explain the Sub-Adviser’s use of maturity measures in managing the Fund.
See response to Comments #5.a and #5.b
above. The Registrant intends to remove certain references to maturity.
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f. Please explain what market conditions would justify a deviation from the Fund’s duration.
See response to Comment #5.a above.
6. With respect to municipal securities, please add an allocation percentage if the Fund expects to invest
a significant amount of assets in a particular municipality.
The Registrant confirms that the Fund
does not expect to invest a significant amount of assets in a particular municipality.
7. The staff notes the Fund’s name includes the phrase “short duration.”
a. Please include a simple example of the impact of interest rate changes on duration (e.g., a 1% interest
rate increase = a change in duration of ___).
b. Please explain the Sub-Adviser’s use of maturity measures in managing the Fund.
See response to Comment #5.
8. Please disclose the expected percentage of foreign versus domestic securities in the Fund’s portfolio.
The Registrant will add the following
disclosure to “Principal Investment Strategies”:
The Fund expects to invest up to 30%
of its total assets in U.S. dollar-denominated, investment-grade fixed income debt instruments issued by non-U.S. domiciled issuers.
9. The first sentence of the second paragraph under states: “The Fund invests, under normal circumstances,
at least 80% of its total assets (plus the amount of any borrowings for investment purposes) either directly or indirectly (e.g., through
derivatives) in a portfolio of U.S. dollar-denominated, investment-grade fixed income debt instruments.”
a. Please identify the derivatives to be used for the Fund’s 80% policy. Please also disclose any
other principal investments the Fund will use to invest indirectly for purposes of the Fund’s 80% policy.
The Registrant respectfully declines to
make the changes in response to this comment. Consistent with industry practice and SEC staff guidance, a fund may obtain the requisite
exposure to comply with its 80% policy either through investments directly in securities or indirectly using derivatives. While the Fund
does not intend to use derivatives to meet its 80% policy, it reserves the right to do so.
Additionally, if Registrant determines
to seek to meet its 80% policy indirectly, it may do so by investing in derivatives, in another fund that invests in the same securities
as the Fund or by some other permissible means. The use of “e.g.” by the Registrant is meant to provide investors with an
example of how the Fund might seek to meet its 80% policy. If the Fund determined to seek to meet is 80% policy indirectly, including
through derivatives, Registrant would provide Item 4 risk disclosure relating to any such method of seeking to meet its 80% policy. At
present, the Registrant believes that its Item 4 disclosures adequately reflect its anticipated principal investment strategies and corresponding
risk.
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b. Please indicate whether the investment grade status will be an ongoing requirement or a time-of-purchase
test. In addition, if an investment grade security is downgraded, please indicate the minimum rating for a security to continue to be
held by the Fund for purposes of the Fund’s 80% policy.
The Registrant intends to revise the second
and third paragraphs under “Principal Investment Strategies” as follows:
The Fund invests, under normal circumstances,
at least 80% of its total assets (plus the amount of any borrowings for investment purposes) either directly or indirectly (e.g., through
derivatives) in a portfolio of U.S. dollar-denominated, investment-grade fixed income debt instruments. The fixed income debt instruments
in which the Fund may invest include municipal securities, securities issued or guaranteed by the U.S. government and its agencies, government-sponsored
enterprise securities, corporate debt securitiesbonds, agency and non-agency mortgage-backed
securities of any kind, including commercial mortgage-backed securities (“CMBS”), asset-backed
securities of any kind, and the rated debt tranches of collateralized loan obligations (“CLOs”)
(i.e., securities backed by an underlying portfolio of loan obligations, which may include, among others, senior unsecured loans
and subordinate corporate loans), sovereign debt, and debt securities issued by supranational organizations.
“Investment-grade” securities
are securities that are rated above Baa3 by at least one nationally recognized statistical rating organizations (“NRSRO”).
In the case of a split rated security (that is, two or more NRSROs give a security different ratings), the highest rating shall apply.
The Fund may only invest in fixed income investments that have a minimum of B3 by Moody’s Investors Services, Inc. (“Moody’s”)
or B- by S&P Global Ratings (“S&P”), or the equivalent by another NRSRO or that are unrated but considered to be of
equivalent quality by the Sub-Adviser. Those bonds rated Baa3/BBB-/BBB-, while considered to be “investment grade,”
may have speculative characteristics. Any credit quality requirements as to investments apply only at the time of an investment to which
the requirement is applicable and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and
as a result of such investment. Accordingly, any later credit quality downgrade or change in circumstances will not be considered in determining
whether any investment complies with the Fund’s credit quality limitation or requirement.
c. Please disclose (i) whether security ratings are considered only at the time of investment, (ii) when
the Fund will dispose of a downgraded security, and (iii) that securities rated BBB have speculative characteristics.
See response to Comment #9b above.
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The Registrant also intends to add the
following disclosure to the third paragraph under “Credit Risk”:
Credit risk is greater for lower-rated
securities. Those bonds rated Baa3/BBB-/BBB-, while considered to be “investment grade,” may have speculative characteristics.
Because the issuers of lower rated investment grade bonds may be in uncertain financial health, the prices of their debt securities could
be more vulnerable to bad economic news, or even the expectation of bad news, than higher rated investment-grade debt securities. Credit
ratings may not be an accurate assessment of credit risk.
10. The second sentence of the second paragraph under states: “The fixed income debt instruments
in which the Fund may invest include municipal securities, securities issued or guaranteed by the U.S. government and its agencies, government-sponsored
enterprise securities, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities (“CMBS”), asset-backed
securities, collateralized loan obligations (CLOs), sovereign debt, and debt securities issued by supranational organizations.”
a. Please confirm which types of asset-backed securities and mortgage-backed securities (including CMBS)
are principal investments.
See response to Comment #9.
b. Please indicate whether the Fund will invest in non-government mortgage-backed securities that rely
on Sections 3(c)(1) and 3(c)(7) of the 1940 Act. If so, please include the appropriate risk disclosure and state any minimum or maximum
permitted amount of such securities.
The Registrant confirms that the Fund
does not expect to invest more than 15% of its net assets in non-government mortgage-backed securities that rely on Sections 3(c)(1) and
3(c)(7) of the 1940 as a principal investment strategy.
c. Please include a plain English definition of “CLOs” and clarify what types of CLOs the
Fund will invest in (e.g., debt or equity (including what tranches)). Please include the appropriate risk disclosure and state the maximum
permitted amount of such securities.
See response to Comment #9.
The Registrant also intends to replace
the “CLO Risk” disclosure with the following disclosure in response to the staff’s comment:
Item 4:
CLOs are a type of asset-backed
security that is typically structured as a trust collateralized by a pool of loans. The cash flows from the trust are split into two or
more portions, called tranches, varying in risk and yield. The risks of an investment in a CLO depend largely on the type of the collateral
securities and the class of the instrument in which the Fund invests. In addition to the general risks associated with debt securities
discussed herein, CLOs carry additional risks, including, but not limited to (i) the possibility that distribut