iShares Interest Rate Hedged High Yield Bond ETF

HYGH

Market cap $438M

iShares Interest Rate Hedged High Yield Bond ETF offers a high yield with an effective interest rate hedge, outperforming peers in total return and risk metrics. HYGH's portfolio is primarily HYG, with interest rate swaps reducing effective duration to near zero. The fund's hedging strategy excelled during periods of rising rates, but chronic value erosion in junk bonds remains a concern.

HYGH's high expense ratio is a major drawback, especially compared to cheaper high yield ETFs like SPHY and USHY. High yield bond spreads are currently tight relative to historical norms. Fed rate cuts are likely to benefit high yield ETFs which have moderate interest rate exposure.

The Fed slashes rates by 25 basis points, as expected but provides a somewhat hawkish guidance.

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iShares Interest Rate Hedged High Yield Bond ETF invests in high-yield bonds while using derivatives to hedge interest rate variations. HYGH underperformed the non-hedged underlying index when rates were staying in a range, then it outperformed when they surged. HYGH is the largest, most liquid and best performing “junk bond” ETF with an interest rate hedge.

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HYGH invests in high-yield corporate bonds and hedges its interest rate risk through swaps. HYGH has a strong 9.1% dividend yield, 3.1% higher than HYG, the largest unhedged high-yield bond ETF in the market. The fund's performance track record is good, outperforming most bonds and bond sub-asset classes since inception.

Some income ETFs offer high yields and strong value propositions, but fly under the radar of most investors. I've identified three such ETFs: RISR, HYGH and CLOZ. These offer yields in the 7% - 9% range, have outperformed since inception, and get little coverage at Seeking Alpha.

The iShares Interest Rate Hedged High Yield Bond ETF (HYGH) offers investors exposure to high-yield corporate bonds while mitigating interest rate risk. HYGH achieves this by investing in the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and maintaining short positions in interest rate swaps.

Traders have dialed back their expectations for immediate Fed rate cuts, now viewing them as less likely in the near term. Investors can navigate this edgy investing backdrop with these ETFs.