BlackRock’s iShares mints short-duration versions of its popular investment grade and speculative grade corporate debt exchange traded funds to help investors mitigate the effects of rate risk.
“Interest rates continue to climb and investors are concerned this trend will continue, leading them to demand short maturity ETF solutions,” Matthew Tucker, Head of iShares Fixed Income Investment Strategy, said in the press release. “iShares new short maturity bond ETFs provide diversified exposure in a single, cost efficient fund and can be combined with our existing fixed income iShares funds to create a fixed income portfolio that is nimble for today’s market conditions.”
Rising interest rates have a negative effect on bond prices. The negative effect is less pronounced in bonds with shorter durations than on long-term debt.
SLQD tracks short-term investment grade corporate debt, with an effective duration of 2.48 years. Duration is a measure of a bond fund’s sensitivity to changes in interest rates. For every 1% increase in interest rates, SLQD would dip about 2.48%. The ETF has a 0.15% expense ratio.
Credit quality breakdown includes AAA 1.0%, AA+ 3.1%, AA 5.3%, AA- 8.9%, A+ 11.2%, A 16.8%, A- 24.4%, BBB+ 9.7%, BBB 7.9%, BBB- 5.8%.
SHYG track short-term speculative grade, or “junk,” debt, with an effective duration of 2.19 years. The ETF has a 0.50% expense ratio. [High-Yield Bond ETFs and Rising Rates]
Credit quality breakdown includes BBB- 7.4%, BB+ 8.1%, BB 8.9%, BB- 17.9%, B+ 13.5%, B 9.3%, B- 7.8%, CCC+ 6.8% and other 18.3%. The junk bond ETF has a small allocation to low investment-grade BBB- bonds.
In comparison, the similar iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD) has an effective duration of 7.48 years and a 3.54% 30-day SEC yield. The iShares iBoxx High Yield Corporate Bond (HYG) has a 4.14 year effective duration and a 5.18% 30-day SEC yield.
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Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.