BlackRock’s iShares has launched an actively managed fixed-income exchange traded fund that is based off its popular investment-grade corporate bond ETF and comes with a twist to help investors hedge against the negative effects of rising inflation.
BlackRock’s iShares recently launched the actively managed iShares Inflation Hedged Corporate Bond ETF (Cboe: LQDI), which has a 0.20% expense ratio.
BlackRock iShares’ James Mauro and Scott Radell will act as the portfolio managers of the new LQDI and are primarily responsible for the day-to-day management of the fund.
The iShares Inflation Hedged Corporate Bond ETF will try to diminish inflation risk of a portfolio comprised of U.S. dollar-denominated, investment-grade corporate debt, according to a prospectus sheet.
Inflation-Hedging Mandate
The new ETF will achieve its inflation-hedging mandate through the use of inflation swaps, contracts in which the ETF will make fixed-rate payments based on notional amount while receiving floating-rate payments determined from an inflation index. Additionally, the ETF may also invest in other instruments designed to transfer inflation risk from one party to another, including but not limited to Treasury Inflation Protected Securities, total return swaps, credit default swaps, interest rate swaps and U.S. Treasury futures.
The fund may also invest in other ETFs, U.S. government securities, futures, options and swap contracts, short-term paper, cash and cash equivalents. LQDI currently includes a hefty 97.4% position in iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD), the largest investment-grade corporate bond-related ETF on the market, along with 7.9% in a money market fund and smaller positions in swaps.
Through its investment methodology, the new ETF will help diminish exposure to inflation risk while maintainining exposure to real rate and credit risk. Investors are basically getting LQD exposure but they are also protected against rising inflation expectations.
LQDI currently shows an effective duration of 7.87 years and a 4.06% 30-day SEC yield.
For more information on new fund products, visit our new ETFs category.