HYGH ETF

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.

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.

HYGH allows investors to trade a view on credit spreads. Credit spreads are currently at historically low levels, but there are concerns about weaker corporate balance sheets and increased credit risk perception. HYGH yields nicely, and the lack of duration is also a benefit if markets are disappointed with the pace of disinflation, but we think credit risk is understated.

HYGH invests in high yield bonds, and hedges its interest rate exposure. The fund has outperformed in the recent past, and yields more than its peers. An overview of the fund follows.

iShares Interest Rate Hedged High Yield Bond ETF allows investors to bet on the direction of credit spreads. Contrary to my expectations, HYGH has performed well since the regional bank crisis as policymakers prevented credit contagion through liquidity injections and deposit guarantees. Another technical reason for tighter credit spreads is that the all-in yield for high-yield bonds is now attractive, so investors have been buying.