BlackRock introduces euro-hedging for two HY corporate bond ETFs

Apr 13th, 2018 | By | Category: Fixed Income

BlackRock has introduced two new currency-hedged share classes for two of its high yield corporate bond ETFs listed on Deutsche Börse. Each new share class offers currency hedging relative to their trading currency – the euro.

euros euro-hedging currency hedged etfs

The new share classes offer currency-hedged exposure relative to the euro.

The first fund is the iShares USD High Yield Corporate Bond UCITS ETF which enables investors to access the most liquid, US dollar-denominated corporate bonds from companies in industrialised countries. It does this through tracking the market cap-weighted Markit iBoxx USD Liquid High Yield Capped Index.

Bonds in the index must have a sub-investment grade rating as well as a minimum term of one and a half years and a maximum of fifteen years.

The new euro-hedged share class trades under the ticker IHYE GR. Euro-hedging on the fund has been available on London Stock Exchange (Ticker: IHYE LN) since November 2017.

The currency-hedged share classes have total expense ratios (TERs) of 0.55%. The original unhedged version costs 0.50%, and the combined assets under management of the fund is over $4.2 billion.

The second fund to have a euro-hedged share class listed on Xetra is the iShares Fallen Angels High Yield Corporate Bond UCITS ETF which offers investors access to the performance of ‘fallen angels’ – high-yield corporate bonds that were designated investment grade at time of issuance but have since been downgraded to a sub-investment grade rating.

The strategy is based on the premise that the overly negative sentiment surrounding a downgrade into junk status causes fallen angels to be regularly oversold as investors (often forced by their investment mandate) sell en masse prior to and at downgrade, leading to a price anomaly.

The underlying Bloomberg Barclays Global Corporate ex EM Fallen Angels 3 percent Issuer Capped Index contains both fixed and floating rate bonds which have a minimum term to maturity of one year. Emerging market issuers and bonds rated below B- are excluded as part of its screening process. The index is rebalanced on a monthly basis. Constituents are weighted by market capitalisation with issuer weights capped at 3% to enhance diversification.

The euro-hedged share class (Ticker: WNGE GR) also has a TER of 0.55% while the unhedged version costs 0.50%. The fund is relatively new, having been launched in June 2016. It has accumulated over $430 million in AUM.

Both new share classes distribute income generated within their portfolios.

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