BlackRock rolls out CHF-hedged corporate bond ETFs on SIX Swiss Exchange

Aug 5th, 2019 | By | Category: Fixed Income

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BlackRock has rolled out three new share classes on SIX Swiss Exchange, providing access to different segments of the EUR and USD corporate bond markets while hedging currency exposure relative to the Swiss franc.

BlackRock rolls out currency-hedged corporate bond ETFs on SIX

The new share classes provide currency hedging relative to the Swiss franc.

The listings, which are share classes of existing ETFs trading on SIX, target euro-denominated investment-grade credit, euro-denominated high-yield, and US dollar-denominated high-yield exposures.

They are the iShares Core € Corp Bond UCITS ETF (IECH SW), the iShares € High Yield Corp Bond UCITS ETF (HIHC SW), and the iShares $ High Yield Corp Bond UCITS ETF (IHYC SW) respectively.

Euro investment grade

The iShares Core € Corp Bond UCITS ETF tracks the Bloomberg Barclays Euro Aggregate Corporate Index, a reference for the performance of investment-grade, EUR-denominated, fixed-rate corporate bonds with maturities greater than one year.

European corporate bond yields have been driven lower recently as investors ramped up their buying of corporate debt on expectations of lower interest rates. According to data from Tradeweb, over 40% of euro-denominated investment-grade corporate debt currently has a negative yield. Mirroring this, the yield on the ETF’s underlying index is just 0.35%.

The majority of the index exposure is allocated to bonds from companies domiciled in France (20.7%), the US (19.5%), and Germany (14.4%), with the next largest country exposures being the UK (8.9%), The Netherlands (6.4%), and Spain (5.8%).

Just over half (52.1%) of the index is in bonds rated BBB, while bonds rated A and AA account for a further 37.7% and 9.6%, respectively. Its effective duration is 5.2 years.

The share class comes with a total expense ratio (TER) of 0.25% and capitalizes income within its portfolio. The existing non-hedged, distributing share class trades under the ticker IEAC SW and comes with a TER of 0.20%.

The fund houses over €12.6 billion across all its share classes.

Euro high yield

The iShares € High Yield Corp Bond UCITS ETF is linked to the iBoxx EUR Liquid High Yield Index.

Bonds with a remaining term to maturity between two and 10.5 years and a credit rating below Baa3/BBB- are selected for inclusion in the index, and may have either a fixed or variable rates of interest. Constituent weights are capped at 3% per issuer and 20% per country at monthly rebalancings.

The majority of the index is currently allocated to bonds from companies domiciled in Italy (18.7%), the US (15.0%), France (13.5%), and Germany (14.4%), with notably smaller exposures to The Netherlands (6.3%) and Spain (4.9%).

The credit quality buckets with the highest allocations are BB at 60.5% and B at 31.4%, and the index currently yields 2.9% with an effective duration of 2.7 years.

The share class comes with a TER of 0.55% and capitalizes income within its portfolio.

The existing non-hedged, distributing share class trades under the ticker IHYG SW and comes with a TER of 0.50%. The fund houses over €8.5bn across all its share classes.

US dollar high yield

The iShares $ High Yield Corp Bond UCITS ETF is linked to the iBoxx USD Liquid High Yield Capped Index, which tracks the most liquid, US dollar-denominated corporate bonds from companies in industrialized countries.

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 US makes up the vast majority of the index exposure at 92.9%, with minor allocations to bonds from firms domiciled in Israel (2.2%) and Canada (1.1%).

Reflecting its high-yield status, most of the index is allocated to bonds with a BB rating, at 59.0%, followed by bonds rated B (32.0%). The index is currently yielding 5.3% and has an effective duration of 3.0 years.

The share class’s TER is also 0.55%, and it too capitalizes income within the portfolio.

The ETF collectively houses around $4.3bn in AUM across all share classes. The non-hedged, distributing share class on SIX (TER 0.50%) can be found using the ticker IHYU SW.

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