BetaShares launches interest rate hedged bond ETF

Oksana Patron

18 November 2022

BetaShares has announced the launch of the first Interest Rate Hedged Australian Investment Grade Corporate Bond ETF (HCRD) on the Australian Securities exchange (ASX).

The new fund would offer investors exposure to grade fixed-rate Australian corporate bonds, hedged to reduce interest rate risk.

The fund would hold exposure to long-term investment grade bonds from a range of corporate issuers from different industries, and seek to provide investors with monthly income expected to exceed income paid on cash, term deposits, and senior floating rate notes.

HCRD would also use bond futures contracts to substantially reduce interest rate risk, as movements in government bond yields were typically the largest contributor to the volatility of fixed rate corporate bonds.

The firm said the hedging strategy contained in HCRD would aim to reduce volatility and capital variability of the bond portfolio while HCRD would retain full exposure to the credit component of the portfolio as a primary source of return.

BetaShares’ chief executive, Alex Vynokur, said HCRD would use an intelligent indexing approach, by selecting the bonds in its portfolio based on expected returns rather than debt, aimed to avoid shortcomings of traditional debt weighted indices.

“Australian corporate bonds are regarded as a core building block of a well-diversified portfolio. HCRD offers investors exposure to this core asset class in a way that reduces interest rate risk – an important consideration in an environment where inflation and interest rates are front of mind for investors and their advisers,” he said.