iShares $ Corp Bond Interest Rate Hedged UCITS ETF

Issuer: iShares

Asset Class: Fixed Income

TER: 25bps

Trading Currency: USD

Pays Income: False

Listing Date: 03 Jul 2018

Ticker: HLQD

ISIN: IE00BZ173W74

This fund offers a sophisticated approach for investors seeking exposure to the US corporate bond market while specifically managing interest rate risk. The core strategy involves investing in a diversified portfolio of US dollar-denominated, investment-grade corporate bonds. Simultaneously, it implements a hedging mechanism by taking short positions in US Treasury futures. This dual approach is designed to neutralize the portfolio's sensitivity to changes in interest rates, effectively targeting a duration close to zero. The result is an investment that aims to capture the credit spread—the extra yield corporate bonds offer over government bonds for their perceived higher credit risk—while stripping out the price volatility associated with fluctuating interest rates. This makes it a distinct tool for fixed-income allocation.

This investment vehicle is particularly suited for individuals who are bullish on corporate credit quality but bearish or uncertain about the direction of interest rates. In a rising rate environment, traditional bond funds can suffer significant capital losses as bond prices fall. By hedging this duration risk, the fund seeks to protect capital from such movements, allowing the investment's performance to be primarily driven by the creditworthiness of the underlying companies. It can serve as a core holding or a tactical addition to a fixed-income portfolio, offering potential for income and diversification. It provides a way to harvest the credit risk premium without the often-unwanted exposure to broad interest rate shifts, which can be particularly valuable during periods of monetary policy changes.