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iShares Plans Hedged Corporate Bond ETFs

Hannah Tool

iShares filed two prospectuses detailing the company’s plan to invade turf pioneered by ProShares, First Trust and Market Vectors with two interest-rate hedged bond funds:the iShares Interest Rate Hedged Corporate Bond ETF and the iShares Interest Rate Hedged High Yield Bond ETF .

As rates continue to rise and bond investments become increasingly unstable territory for investors, hedged instruments like these two proposed funds have gained popularity as a safer way to inhabit what has become an anxiety-provoking corner of the investment market.

iShares plans to invest what both prospectuses called a “substantial portion” of each fund’s investment into currently traded, highly successful iShares corporate bond ETFs focused on investment-grade and high-yield corporates, respectively.

The iShares Interest Rate Hedged Corporate Bond ETF will allocate to the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), which has $17.6 billion in assets and costs 15 basis points; and the iShares Interest Rate Hedged High Yield Bond ETF will invest in the iShares iBoxx High Yield Corporate Bond fund (HYG), which costs 50 basis points and has $14.4 billion in assets currently, according to IndexUniverse data.

By using iShares’ own ETFs as underlying constituents in these two interest-rate hedged funds, investors will have to pay more direct and indirect fees to invest in these funds than they would the iShares funds that underlie them, according to the prospectuses.

But the regulatory paperwork didn’t say how much either of the two new funds would cost, or under what ticker they would be listed.

These two proposed funds will attempt to mitigate the risk associated with the underlying iShares ETFs as well as other underlying securities through short positions in U.S. Treasury futures contracts.

Both funds will be listed on the New York Stock Exchange’s electronic platform, Arca, the filings said.


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