ProShares’ Investment Grade – Interest Rate Hedged ETF (IGHG) has surpassed USD100 million in assets.
Launched in November 2013, IGHG delivers a diversified portfolio of investment grade bonds with a built-in interest rate hedge.
“We believe that the strong flows into our interest rate hedged ETFs demonstrate investor interest in going beyond short-term bond funds to protect against rising rates,” says Michael Sapir, chairman and CEO of ProShare Advisors. “IGHG and our interest rate hedged high yield ETF, HYHG, have together attracted more than USD275 million in the little more than a year since we launched HYHG.”
While the short duration of short-term bond funds may provide some protection against rising rates, IGHG and HYHG go beyond short-term bond funds by targeting a duration of zero. Duration is a measure of price sensitivity to interest rate changes—the lower the duration, the less sensitive an investment should be. IGHG and HYHG target zero duration by combining a portfolio of corporate bonds with short Treasury futures positions that provide a built-in hedge.
IGHG follows the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index, a US dollar-denominated index that measures the performance of investment grade corporate debt. The index consists of a long position in investment grade corporate bonds and a duration-matched short position in US Treasury bonds. The investment grade portion of the index offers exposure to the more liquid, cash-pay bonds. Each issuer is limited to three per cent of the market value of the investment grade corporate position of the index.
The short position in US Treasury securities attempts to hedge the duration and yield curve exposure of the long position in the investment grade bonds in the Index. This strategy seeks to mitigate the negative impact of rising US Treasury interest rates on the performance of investment grade bonds. Conversely, the strategy may limit the positive impact of falling interest rates.
In the ETF, the short position in US Treasury securities is constructed using three US Treasury securities corresponding to the 10-Year US Treasury Note Futures, US Treasury Bond Futures and Ultra US Treasury Bond Futures contracts in an attempt to approximate the maturity distribution of the overall index.