iShares has launched the iShares $ Corporate Bond Interest Rate Hedged UCITS ETF and iShares £ Corporate Bond Interest Rate Hedged UCITS ETF on the London Stock Exchange.
The funds offer physically-backed exposure to corporate bonds whilst mitigating interest rate risk and will complement the extensive range of fixed income ETFs currently offered by iShares.
In low yield environments, many investors choose to seek extra income by investing in corporate bonds. These new funds are designed to cater for those investors who want to obtain additional yield, but are concerned about the impact of changes in government bond yields on bond prices, at a time when uncertainty around central bank monetary policy has seen volatility in yields increase. The funds aim to mitigate interest rate risk by selling government bond futures and targeting a duration of zero.
Tom Fekete, head of product development for iShares in Europe, the Middle East and Africa says: “Investors remain interested in high quality corporate bonds as fundamentals are supportive and yields start to look more interesting. However, corporate bond investors take on the risk that the value of their bonds will fall as yields rise.
“The new funds aim to mitigate interest rate risk and enable investors to access the performance of corporate bonds in a single cost-efficient trade. We hope to expand this product suite further to give investors more choice in the way they manage interest rate risk and to meet the significant long-term demand for fixed income ETFs.”
The funds have a total expense ratio of 0.25 per cent and track the Markit iBoxx USD Liquid Investment Grade Index and the Markit iBoxx GBP Liquid Corporates Large Cap Index respectively. They follow the launch of the iShares Euro Corporate Bond Interest Rate Hedged UCITS ETF in October 2012, which has since grown to more EUR280m in assets.
