It is a passive bond ETF that holds a portfolio of high yield corporate bonds while hedging interest rate risk by selling Treasury futures. By lowering duration close to zero, it is exposed to credit spread returns rather than to interest rate moves.

It suits investors who want the high distribution income of high yield but aim to reduce interest rate risk and focus on credit risk.

It is an ETF managed by iShares using a passive (index-tracking) approach.

The fund holds a portfolio of high yield corporate bonds and sells Treasury futures to hedge its exposure to interest rate changes. By lowering duration close to zero, it gains better price resilience when rates are rising, but in exchange it is heavily exposed to changes in credit spreads.

• High yield exposure with interest rate risk hedged
• Focus on credit spread returns

Assets under management (AUM) stand at $641.6M, and the total expense ratio is 0.52% per year.

The main point of comparison versus HYG and USHY, which are similar high yield ETFs that do not hedge interest rates, is whether the fund carries interest rate exposure.

Rate-hedged high yield is driven more by credit spreads and the economic outlook than by the direction of interest rates, and it tends to show better price resilience than regular high yield when rates are rising. However, if an economic slowdown brings credit risk to the fore, prices can swing regardless of the hedge.

Rate-hedged high yield tends to draw inflows from investors seeking to avoid interest rate risk when rate-hike concerns grow, and fund flows diverge depending on the credit environment and risk appetite. It is also worth watching how performance varies with hedging costs and changes in credit spreads.

Its strength is reduced interest rate risk, while credit risk, hedging costs and the lack of benefit when rates fall are considerations.

Direct unhedged substitutes that track the same high yield index include HYG and USHY, and these are more advantageous if you also want to benefit from falling rates. Lower-cost high yield options include SPHY, and for reducing interest rate risk in a different way, products such as SHYG (short-term high yield) and BKLN (floating-rate senior loans) are also worth comparing. To focus on bonds whose credit ratings are improving, you can also consider products such as ANGL. This ETF's differentiator is that it combines high yield with an interest rate hedge to focus on credit returns.

Here are the points to review before investing in HYGH. Reduced interest rate risk is the attraction, but credit risk, hedging costs and the lack of benefit when rates fall need to be checked in advance. It is also a good idea to compare it with unhedged high yield and floating-rate products.

Credit spread widening and hedging costs are the main short-term performance variables, and in periods of falling rates, the hedge can cause returns to lag regular high yield. Even with rates hedged, credit risk remains.

It is a suitable candidate for investors who want high yield returns but aim to reduce interest rate risk. If you also want to benefit from falling rates, compare unhedged products such as HYG and USHY, and if reducing interest rate risk is the priority, compare this product alongside them before choosing.