IGHG has a high-yield counterpart, the ProShares High Yield Interest Rate Hedged ETF (BATS: HYHG). The two rate-hedged bond ETFs achieve their diminished rate-risk status by shorting Treasury notes so that the underlying portfolio shows a near-zero duration – duration is a measure of sensitivity to changes in interest rates, so a zero duration translates to no sensitivity to changes.
Although IGHG protects against rising rates, that does not mean investors sacrifice yield. The ETF has a 30-day SEC yield of almost 3.4%. Nor does IGHG’s rate protection strategy imply increased credit risk. At the end of the third quarter, the bulk of IGHG’s holdings were rated A-, A or BBB+.
By hedging away rate risk, bond investors can focus on the underlying debt securities without fear of the negative effects of rising interest rates, maintaining their current level of income generation and potentially capitalizing on the tightening credit spreads.
IGHG’s effective duration is zero. Duration measures a bond’s sensitivity to changes in interest rates.
For more information on corporate debt, visit our corporate bonds category.