iShares, the ETF platform of BlackRock, has expanded its corporate bond range with the launch of two interest rate-hedged ETFs in a bid to offer investors exposure to corporate bonds while mitigating the risk of rising benchmark yields.
The firm has launched the iShares $ Corporate Bond Interest Rate Hedged UCITS ETF and iShares £ Corporate Bond Interest Rate Hedged UCITS ETF on the London Stock Exchange.
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The sterling and dollar versions of funds will offer physically-backed exposure to corporate bonds and complement the extensive range of fixed income ETFs currently offered by iShares.
iShares said the products are aimed at investors looking for additional yield but who are concerned about the impact of changes in government bond yields on prices.
The funds aim to mitigate interest rate risk by selling government bond futures and targeting duration of zero.
The interest rate hedging technique employed by the two funds aims to reduce exposure to parallel shifts in the interest rate curve of the government bond market they are referenced to.
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By GlobalDataThe funds have a total expense ratio of 0.25% and the dollar fund tracks the Markit iBoxx USD Liquid Investment Grade index, while the sterling version tracks the Markit iBoxx GBP Liquid Corporates Large Cap index.
Tom Fekete, head of product development for iShares in EMEA said: "Investors remain interested in high quality corporate bonds as fundamentals are supportive and yields start to look more interesting. However, corporate bond investors take on the risk that the value of their bonds will fall as yields rise.
"The new funds aim to mitigate interest rate risk and enable investors to access the performance of corporate bonds in a single cost-efficient trade.
The move follows the launch of the iShares Euro Corporate Bond Interest Rate Hedged UCITS ETF in October 2012, which has since grown to more 280 million in assets.
