Short-Dated LQD, HYG Clones Launching

October 16, 2013

‘SLQD’ and ‘SHYG’ will have some protection from capital losses when rates move higher.

iShares on Thursday is launching short-dated versions of its highly successful investment-grade and high-yield corporate bond ETFs “LQD” and “HYG” in a bid to offer investors more protection from capital losses as interest rates rise in the coming months and years.

The new funds, the iShares 0-5 Year High Yield Corporate Bond ETF and the iShares 0-5 Year Investment Grade Corporate Bond ETF, are, as noted, iterations of two similar, but longer-dated corporate bond ETFs, the $13.9 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD | B-64) and the $15 billion iShares iBoxx $ High Yield Corporate Bond ETF (HYG | B-64).

The two new ETFs, their indexes and their prices, are as follows:

  • The iShares 0-5 Year High Yield Corporate Bond ETF, which will trade with the ticker “SHYG,” will hold U.S.-dollar-denominated, high-yield corporate bonds with less than five years before maturity, tracking the Markit iBoxx USD Liquid High Yield 0-5 Index. The fund’s annual expense ratio is 0.50 percent, or $50 for every $10,000 invested.
  • The iShares 0-5 Years Investment Grade Corporate Bond ETF, which will trade with the ticker “SLQD,” will track the Markit iBoxx USD Liquid Investment Grade 0-5 Index, which holds investment-grade corporate bonds with at least $500 million face value and no more than five years until maturity. The fund’s expense ratio is 0.15 percent, or $15 for every $10,000 invested.

The two ETFs cherry-pick the shorter half of each of LQD’s and HYG’s targeted holdings. Rolling out two shorter-duration corporate bond funds will allow investors to more carefully calibrate corporate-bond exposure to minimize the possibility of capital losses as official interest rates and bond yields head higher in the coming months and years.

Bond prices drop as interest rates rise, though those price moves are less pronounced on short-dated debt than on longer-dated credit. The two new funds were specifically designed to address investor appetite for shorter-duration debt as the era of ultra-low yields and quantitative easing looks to be on the verge of beginning to end.

iShares first put the two ETFs into registration in July.



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