The Deutsche X-trackers High Yield Corporate Bond – Interest Rate Hedged ETF (Cboe: HYIH) is one of the exchange traded funds designed specifically to keep investors engaged with high-yield corporate bonds while mitigating interest rate risk.

HYIH seeks to track the performance, before fees and expenses, of the Solactive High Yield Corporate Bond – Interest Rate Hedged Index, which aims to mitigate exposure of interest rate sensitivity across the yield curve in a rising rate environment,” according to DWS.

Due to their greater risk profile, high-yield bonds have been more correlated with major U.S. equity indices, which have experienced wider oscillations in recent months.

Fixed-income ETF investors should look into the opportunities in the short-end of the yield curve to generate income while mitigating duration risk and consider ways to blend active and passive exposures to position portfolios in today’s bond market.

HYIH Advantages

At the end of the second quarter, HYIH held nearly 1,100 bonds as the fund’s ETF of ETFs structure gives a diversified asset base. The fund’s modified duration to worst is 0.50 years with a yield to worst of 5.68%, according to issuer data.

Although the fund is designed to reduce interest rate risk, it does not subject investors to a reduced income profile. HYIH yields just over 7%.

HYIH’s underlying holdings are the Xtrackers USD High Yield Corporate Bond ETF (HYLB) and the Xtrackers High Beta High Yield Bond ETF (NYSEArca: HYUP).

“In summary, the current low bond yields indicate that only moderate growth is expected. The gap between conventional and inflation-protected bond yields has increased slightly since mid-2016 but remains small,” according to DWS research. “Inflation expectations are trending upward but remain historically low. The Fed is therefore normalizing its monetary policy in small steps, resulting in a gradual interest-rate increase. History has shown that stock markets perform positively when only a modestly rising interest-rate environment is expected. We therefore retain our positive expectation for equities.”

For more information on the fixed-income space, visit our bond ETFs category.