Solactive writes that in a slower economic environment with expectations of market volatility, investors might look for a quality portfolio that offers attractive income with reduced interest rate risk.
The firm says that there are those who may turn to investment grade corporate bonds, which are quality bonds that receive high rates from credit rating agencies. Within this framework, Solactive has announced that the Australian ETF provider BetaShares has launched the BetaShares Interest Rate Hedged Australian Investment Grade Corporate Bond ETF, tracking the Solactive Australian Investment Grade Bond Select DH Index. The ETF was listed on the Australian stock exchange (ASX), with the ticker HCRD AU and ISIN AU0000247777.
The Solactive Australian Investment Grade Bond Select DH Index (SOLASIGH) tracks the performance of the Solactive Australian Investment Grade Corporate Bond Select Index (SOLAUSIG) while hedging its duration. The SOLAUSIG index provides exposure to AUD denominated non-government investment-grade bonds with a term to maturity between 5.25 and 10.25 years and includes up to 50 bonds selected based on option-adjusted spreads.
The duration hedge is performed by holding a rolling position of the ASX Treasury Bond Futures contracts. Given that movements in government bond yields typically are the largest contributor to the volatility of fixed rate corporate bonds, this hedging strategy aims to reduce volatility and capital variability of the affiliated bond portfolio.