BlackRock introduces currency hedging for global fallen angels ETF

May 23rd, 2018 | By | Category: Fixed Income

BlackRock has listed new currency-hedged share classes for the iShares Fallen Angels High Yield Corp Bond UCITS ETF, providing currency risk mitigation for investors trading in euros or pounds sterling. The fund tracks a portfolio of fallen angel bonds issued by companies in developed market countries.

BlackRock introduces currency hedging for global fallen angels ETF

The new share classes provide currency hedging relative to the euro or pound sterling.

The euro-hedged share class trades on London Stock Exchange (LSE) and Xetra under the ticker codes WNGE LN and WNGE GR respectively, while the sterling-hedged share class trades on LSE only under the ticker WIGG LN. The unhedged fund was first listed on LSE in US dollars and sterling and on Xetra in euros.

The new share classes have total expense ratios (TERs) of 0.55%, slightly higher than the unhedged version which costs 0.50%.

A ‘fallen angel’ refers to a bond that has been downgraded from investment grade to high yield, and can appeal to investors seeking to take advantage of the price anomaly that can arise with a downgrade of these securities (the overly negative sentiment surrounding a downgrade into junk status, causes fallen angels to be regularly oversold prior to their downgrade).

The underlying index of the fund is the Barclays Global Corporate ex EM Fallen Angels 3% Issuer Capped Index, which is down by 1.2% year-to-date (YTD), as of 22 May 2018. The index has exposure to over 450 holdings with a 3% issuer cap to ensure diversification. Emerging market issuers and bonds rated below B- are excluded as part of its screening process. The index is rebalanced on a monthly basis.

The index primarily consists of bonds denominated in US dollars, accounting for over two-thirds (68.8%) of the total index weight. Bonds denominated in euros account for a quarter (25.1%) of the total weight with the remaining weight being in bonds denominated in pounds sterling (5.8%) and Swiss francs (0.3%). As such, the new share classes will appeal to investors who predict the US dollar is likely to depreciate in value against the euro or sterling in the near term.

The fund has significant exposure to the US (52.5%), Italy (12.4%), the UK (9.4%) and France (5.9%). The largest sector exposures are in banking (18.4%), energy (14.2%), basic industry (12.7%), communications (12.6%) and consumer non-cyclical (10.5%).

The largest credit quality within the fund are bonds rated “BB” which accounts for over three-quarters (76.9%) of the total exposure, followed by those rated B (18.0%). The weighted average yield-to-maturity is 4.6% and the fund’s effective duration is 5.2 years.

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