iShares $ High Yield Corp Bond UCITS ETF - GBP Hedged (Dist)

Issuer: iShares

Asset Class: Fixed Income

TER: 55bps

Trading Currency: GBP

Pays Income: False

Listing Date: 23 Mar 2018

Ticker: IHHG

ISIN: IE00BDFJYL11

This fund offers targeted exposure to the U.S. dollar-denominated high-yield corporate bond market, specifically designed for investors looking to mitigate currency risk. High-yield bonds, often referred to as 'junk bonds', are issued by companies with lower credit ratings. To compensate for the higher perceived risk of default, these bonds typically offer significantly higher interest payments, or yields, compared to their investment-grade counterparts. This makes them an attractive option for investors seeking to enhance the income-generating potential of their fixed-income portfolio.

A key feature of this particular investment vehicle is its currency-hedging mechanism. The underlying assets are U.S. dollar-denominated bonds, but the fund uses financial instruments to hedge its exposure back to Pound Sterling. This strategy is crucial for UK-based investors as it aims to neutralize the impact of exchange rate fluctuations between the dollar and the pound on the fund's returns. Consequently, the investment's performance is driven primarily by the credit risk and interest rate dynamics of the underlying high-yield bonds, rather than unpredictable currency movements. This can provide a more stable and predictable return profile in local currency terms.

By investing in a diversified basket of these securities, the fund spreads the inherent credit risk across numerous issuers and industries, which is a more prudent approach than investing in individual high-yield bonds. This makes it a suitable tool for diversifying a traditional portfolio of government and investment-grade corporate bonds, potentially boosting overall yield while managing risk through broad market exposure and a sophisticated currency hedging overlay.