With the threat of rising interest rates looming over the bond market, BlackRock’s iShares, the world’s largest ETF issuer, is working on a handful of active bond exchange traded funds to help investors hedge against rate risk.
BlackRock recently filed for three actively managed “interest rate hedged” bond ETFs.
According to a filing, the iShares Interest Rate Hedged Emerging Markets Bond ETF will try to mitigate interest rate risk of a portfolio composed of U.S. dollar-denominated, emerging market bonds. The fund will include bonds from the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) but hedge against rate risk by going short U.S. Treasuries.
According to a filing, the iShares Interest Rate Hedged 10+ Year Credit Bond ETF will try to mitigate the interest rate risk of a portfolio composed of investment-grade U.S. corporate bonds and U.S. dollar-denominated bonds, including those of non-U.S. corporations and governments, with remaining maturities greater than ten years. The active ETF will include bonds from the iShares 10+ Year Credit Bond ETF (NYSEArca: CLY) but hedges against rate risk through short positions in U.S. Treasury futures.
According to a filing, the iShares Interest Rate Hedged 0-5 Year High Yield Bond ETF will try to mitigate the interest rate risk of a portfolio composed of U.S. dollar-denominated, high yield corporate bonds with remaining maturities of less than five years. The fund will hold bonds from the iShares 0-5 Year High Yield Corporate Bond ETF (NYSEArca: SHYG) but hedges against rate risk through short positions in U.S. Treasuries.
“The broad consensus is that rates will rise at some point in the next few years,” said Alex Bryan, a fund analyst with Morningstar Inc., said in an InvestmentNews article. “If [iShares] investors are concerned about rising rates, this might be a way to ease these concerns.”