Daily ETF Watch: A New Hedging Craze

March 06, 2015

With the long-awaited increase in interest rates now looking likely later in 2015, ETF firms are scrambling over each other to roll out funds that hedge away interest-rate risk, with iShares being the latest entry. Mainly, they’re achieving this duration protection by shorting mainly Treasury securities.

 

Earlier this week, Deutsche Bank rolled out three such funds, the first two of which are focused on investment-grade and high-yield debt, respectively. The new entrants will compete with offerings already on the market from iShares and ProShares.

 

The third fund was the kicker—a hedged emerging market fund targeting USD-denominated bonds. The Deutsche X-trackers Emerging Markets Bond – Interest Rate Hedged ETF (EMIH) was the first of its kind to launch.

 

iShares has followed up just a couple days after that launch with a filing for three more interest-rate-hedged ETFs, including an emerging market fund, as well. The proposed funds are as follows:

 

 

While iShares is clearly looking to launch a competitor to Deutsche’s EMIH, the firm has upped the ante in terms of product differentiation: All three funds are actively managed. The nimbleness afforded active managers could be something investors genuinely appreciate in the emerging market space.

 

It also appears that iShares is looking to offer more targeted exposure with the other two filings, as they basically cover short-term and long-term subsets of the spaces tracked by the index-based iShares Interest Rate Hedged High Yield Bond ETF (HYGH | C-44) and the iShares Interest Rate Hedged Corporate Bond ETF (LQDH | C-32), respectively.

 

The filings did not include expense ratios, tickers or a listing exchange.

 

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