High-yield corporate bonds and the related ETFs have been among the more solid performers in the fixed income space this year, but some investors may want to consider reducing interest rate risk with this asset class
The WisdomTree BofA Merrill Lynch High Yield Bond Zero Duration Fund (NYSEARCA: HYZD) is one of the ETFs that can help with that objective.
The fund “utilizes an Institutional style approach that combines long positions in bonds representative of the BofA Merrill Lynch 0-5 year US High Yield Bond Index with a short position in Treasury securities to target zero duration,” according to WisdomTree.
Due to their near-zero durations, the rate-hedged bond funds should show little to no sensitivity to changes in interest rates. These types of hedged-bond ETFs could provide suitable exposure to the fixed-income market in a rising interest environment ahead.
“The WisdomTree Interest Rate Hedged High Yield Bond Fund (HYZD) can help investors preserve the coverage and breadth of their current investments while reducing their overall exposure to interest rate risk,” according to WisdomTree. “By bundling this institutional style of approach to portfolio management in an exchange-traded fund (ETF), we believe that these products may provide investors with yet another tool to help reduce the interest rate risk of their overall portfolio while supplementing high income levels.”