iShares Interest Rate Hedged Corporate Bond ETF

LQDH

Börsenwert 591 Mio. $

The Fed???s hawkish stance and elevated inflation could keep rates higher for longer. Here are four bond ETFs that could benefit.

Bond yields remain elevated, but rising rates create risks. Here are a few factors to consider before buying bond ETFs.

iShares Interest Rate Hedged Corporate Bond ETF is an interest rate-hedged investment-grade corporate bond index ETF managed by BlackRock. It provides investors with diversified exposure to investment-grade corporate bonds and uses swaps to hedge its interest rate risk. It has significantly outperformed its peers since inception and with lower risk and volatility.

I upgrade iShares Interest Rate Hedged Corporate Bond ETF to Buy, citing renewed upward pressure on rates and effective hedging. LQDH offers a proven interest rate hedge, outperforming LQD in rising rate environments with lower volatility. Switching to LQDH from LQD is recommended until year-end, despite lower 30-day SEC yield (4.74% vs. 5.25%).

LQDH is an interest rate hedged investment-grade corporate bond index ETF managed by BlackRock. It provides investors with diversified exposure to investment-grade corporate bonds and uses swaps to hedge its interest rate risk. It has significantly outperformed its peers since inception, and with lower risk and volatility.

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iShares Interest Rate Hedged Corporate Bond ETF combines LQD exposure with swaps, resulting in near-zero duration. The hedging strategy has worked very well in 2022 when rates surged the most. Despite its effectiveness, LQDH now appears less compelling as rate pressures ease, especially given LQD's lower expense ratio.

Insurance against Fed rate hikes with “rate-hedged” ETFs doesn't come cheap.

We think the Fed has time to assess the impact of tariffs, and we expect it to wait to cut rates until the data show that tariffs are impacting the real economy. So far, there are no signs of recession in the hard data. The tariff pause offers the possibility to avoid worst-case economic scenarios before the damage is crystalized. We believe technical factors will continue to drive market dislocations in spreads and sectors, and that active managers can navigate this more effectively.

“Rate-hedged” bond funds can make money when interest rates rise and bond prices fall.