BlackRock's iShares mints short-duration versions of its popular investment grade and speculative grade corporate debt exchange traded funds to help investors mitigate the effects of rate risk.
The iShares 0-5 Year Investment Grade Corporate Bond ETF (NYSEARCA:SLQD) and iShares 0-5 Year High Yield Corporate Bond ETF (NYSEARCA:SHYG) began trading Thursday, October 17, according to a press release.
"Interest rates continue to climb and investors are concerned this trend will continue, leading them to demand short maturity ETF solutions," Matthew Tucker, Head of iShares Fixed Income Investment Strategy, said in the press release. "iShares new short maturity bond ETFs provide diversified exposure in a single, cost efficient fund and can be combined with our existing fixed income iShares funds to create a fixed income portfolio that is nimble for today's market conditions."
Rising interest rates have a negative effect on bond prices. The negative effect is less pronounced in bonds with shorter durations than on long-term debt.
SLQD tracks short-term investment grade corporate debt, with an effective duration of 2.48 years. Duration is a measure of a bond fund's sensitivity to changes in interest rates. For every 1% increase in interest rates, SLQD would dip about 2.48%. The ETF has a 0.15% expense ratio.
Credit quality breakdown includes AAA 1.0%, AA+ 3.1%, AA 5.3%, AA- 8.9%, A+ 11.2%, A 16.8%, A- 24.4%, BBB+ 9.7%, BBB 7.9%, BBB- 5.8%.
SHYG track short-term speculative grade, or "junk," debt, with an effective duration of 2.19 years. The ETF has a 0.50% expense ratio.
Credit quality breakdown includes BBB- 7.4%, BB+ 8.1%, BB 8.9%, BB- 17.9%, B+ 13.5%, B 9.3%, B- 7.8%, CCC+ 6.8% and other 18.3%. The junk bond ETF has a small allocation to low investment-grade BBB- bonds.
In comparison, the similar iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEARCA:LQD) has an effective duration of 7.48 years and a 3.54% 30-day SEC yield. The iShares iBoxx High Yield Corporate Bond (NYSEARCA:HYG) has a 4.14 year effective duration and a 5.18% 30-day SEC yield.
Max Chen contributed to this article.
Disclosure: I am long HYG, LQD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.