Five ETFs are launching today, including four corporate bond funds from iShares and one multi-asset class “alternative” strategy from PowerShares aimed at better minimizing the effects of market volatility. All five funds are tools that can help investors better manage the expected rise in yields.
Of the four iShares funds, two are actively managed funds that hedge interest-rate risk, and the other two add 2016 and 2018 rungs to the fund sponsor’s growing family of expiring target-date maturity funds.
All five new ETFs come at a time when investors are bracing for rising interest rates as the Federal Reserve continues tapering its bond-buying program. The Fed has also signaled that short-term interest rates may rise earlier than expected in 2015. Rates remain at historically low levels more than five years after the collapse of Lehman Brothers unleashed the biggest credit crunch since the Great Depression.
The active iShares funds, which will compete with other products already on the market from both ProShares and Market Vectors, are as follows:
- iShares Interest Rate Hedged High Yield Bond ETF (HYGH) will primarily invest in the iShares iBoxx $ High Yield Corporate Bond ETF (HYG | B-69). The new hedged fund will have an annual expense ratio of 0.55 percent, or $55 for each $10,000 invested.
- iShares Interest Rate Hedged Corporate Bond ETF (LQDH) will primarily invest in the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD | A-75). The new fund will have an annual expense ratio of 0.25 percent, or $25 for each $10,000 invested.
“Investors should care about these funds now because we’re still near all-time-low interest rates in the U.S., and so we’re getting a lot of questions from investors about how to better manage their fixed -income portfolios in what could be a rising-interest-rate environment going forward,” Matthew Tucker, head of iShares Fixed Income Strategy Americas, told ETF.com.
“At some point, we’re going to see economic conditions improve and inflation start to pick up, and that will likely result in higher interest rates,” he added.
Meanwhile, the two iShares target-date maturity funds launching are focused on investment-grade corporate bonds. The portfolios close down at their respective maturity dates, allowing investors to control interest-rate risk through strategies such as laddering.
The two funds are as follows:
- iSharesBond Dec 2016 Corporate Term ETF (IBDF) will have an annual expense ratio of 0.10 percent, or $10 for each $10,000 invested.
- iSharesBond Dec 2018 Corporate Term ETF (IBDH) will also have an annual expense ratio of 0.10 percent.
The launch-date announcement came in an electronic communique from NYSE Arca.
Invesco PowerShares Capital Management today is launching the PowerShares Multi-Strategy Alternative Portfolio (LALT) on the Nasdaq Stock Market in an attempt to help investors dampen volatility at a time when investors are expecting a rise in interest rates and a pullback in broader markets.
Alternative strategies seek to minimize volatility when markets experience wild swings, but they trail broader markets during big run-ups. For example, the IQ Hedge Multi-Strategy Tracker ETF (QAI | B-73) is up 3.4 percent year-to-date and 5.5 percent in 2013. By comparison, the S&P 500 Index is up about 3.5 percent year-to-date after a 32 percent surge last year.
The PowerShares Multi-Strategy Alternative Portfolio will invest in a combination of equity securities, futures contracts and other securities using long/short and other alternative investment strategies, according to an updated regulatory filing.
The fund has an expense ratio of 0.96 percent, or $96 for every $10,000 invested.
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