BlackRock has launched the iShares Inflation Hedged Corporate Bond ETF (LQDI US) on Cboe ETF Marketplace.

LQDI provides exposure to

The fund seeks to mitigate unexpected inflation risk – inflation going up beyond market expectations – in a portfolio composed of US dollar-denominated, investment grade corporate bonds.

This means that inflation risk will be reduced, but investors will still be exposed to interest rate risk and credit risk.

LQDI invests in the passively managed iShares iBoxx Investment Grade Corporate Bond ETF (LQD US) and also actively manages inflation risk primarily by holding inflation swaps but may also invest in Treasury Inflation Protected Securities (TIPS), US Treasury futures and a variety of other swaps.

LQD was launched in 2002 and has assets under management of $33bn. It has generated an average annual return of 5.4% since inception.

The fund does not seek to replicate the performance of an index, but it uses the iBoxx USD Liquid Investment Grade Inflation Hedged Index as its benchmark.

LQDI has a gross expense ratio of 35bps but BFA, the investment adviser to the fund, has agreed to waive a portion of its management fee so that the fund’s total annual operating expenses is just 5bps higher than LQD, at 20bps. The waiver may be terminated prior to 28 February 2023 only on written agreement of the Trust and BFA.

LQDI complements the rest of iShares’ inflation-protection funds, which includes the $24.4bn iShares TIPS Bond ETF (TIP US) and the $1.8bn iShares 0-5 Year TIPS Bond ETF (STIP US). LQDI is the first ETF to offer this particular type of inflation-protected exposure. Previously, investors only had access to TIPS-based ETFs.

BlackRock also has an interest rate hedged equivalent of LQD, the iShares Interest Rate Hedged Corporate Bond ETF (LQDH US), which launched in May 2014. This fund has assets under management of $222m and an expense ratio of 30bps. It has generated an average annual return of 1.8% since inception.