Hedged High Yield ETF Debuts
May 24, 2013
The ProShares High YieldóInterest Rate Hedged ETF (BATS: HYHG) was launched this week.
HYHG is a new high yield bond ETF that uses Treasury futures to provide a built-in hedge against rising interest rates.
The value of high yield bondsólike that of all bondsócan be negatively affected by rising rates. HYHG maintains short positions in 2-, 5- and 10-year U.S. Treasury futures contracts to hedge its portfolio against possible rate increases.
"We believe that many investors in high yield bond funds may be focused on credit risk but overlook the risk presented by rising rates. When rates go up, they could be in for an unpleasant surprise," said Michael Sapir, Chairman and CEO of ProShare Advisors LLC. "HYHG provides the opportunity to invest in this attractive asset class with less interest rate sensitivity than alternative solutions, including short duration high yield bond funds."
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About the Citi High Yield (Treasury Rate-Hedged) Index
HYHG seeks to track the performance of the Citi High Yield (Treasury Rate-Hedged) Index. The index seeks to provide diversified exposure to a liquid portfolio of high yield bonds while seeking to mitigate the impact of interest rate movements. To be included in the index, bonds must have a minimum issue size of $1 billion USD, be issued within the past five years and have at least one year remaining to maturity. No more than two issues from an issuer are allowed, and no more than 2% of the index is allocated to a single issuer.
The interest rate hedge included in the index is composed of short positions in Treasury securities. The hedge is designed to have sensitivity to interest rate changes approximately equivalent to the long high yield portion of the index. The index does not attempt to mitigate other factors influencing the price of high yield bonds, such as credit risk, which may have a greater impact on high yield bond prices than changes in interest rates.
HYHG charges annual expenses of 0.50%.
ProShares manages a lineup of 141 ETFs including Global Fixed Income, Hedge Strategies, Geared (leveraged and inverse), and Inflation and Volatility ETFs.
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