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An ETF of ETFs to Trim Interest Rate Risk

This article was originally published on ETFTrends.com.

Sticking with high-yield corporate bonds as interest rates climb can be difficult for investors, but some make exchange traded funds make that task easier. That group includes the Deutsche X-trackers High Yield Corporate Bond – Interest Rate Hedged ETF (Cboe:HYIH) .

Bond investors would usually move down the yield curve to hedge against rising interest rate risks as a lower duration bond fund would have a lower sensitivity to changes in interest rates. However, while moving down the yield curve provides a greater level of safety, lower duration bond funds come with less appealing yields.

“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.

How HYIH Works

HYIH uses a methodology seen in other rate-hedged ETFs, which is to hold a traditional junk bond ETF coupled with short positions in Treasury swaps. In the case of HYIH, the fund holds two other corporate bond ETFs, th e Xtrackers USD High Yield Corporate Bond ETF (HYLB) and the Xtrackers High Beta High Yield Bond ETF (HYUP) .

HYUP, which debuted in January, tries to reflect the performance of the Solactive USD High Yield Corporates Total Market High Beta Index, which includes the high-yield corporate bond market that exhibits higher overall beta to the broader high yield corporate bond market.

Beta is a measure of a security’s sensitivity or volatility and reflects the rate of change in a security’s price that results from overall market moves. Higher yielding securities also tend to exhibit higher beta.

Related: How to Best Invest in High-Yield With a Hedge

HYLB tries to reflect the performance of the Solactive USD High Yield Corporate Total Market Index, a market value weighted benchmark designed to mirror the performance of high yield corporate bonds issued in U.S. dollars. HYLB is 93.09% of HYIH's lineup while HYUP accounts for the remaining 5.91%.

Combining HYLB and HYUP means HYLB is home to about 1,100 bonds from over 500 issuers.

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