IGBH ETF: 7.5% High-Yield, Rate-Hedged Bond Fund Analysis

The iShares Interest Rate Hedged Long-Term Corporate Bond ETF (IGBH) offers a compelling investment opportunity with a trailing twelve-month dividend yield of 7.5%. Despite its higher maximum drawdown compared to similar ETFs, its lower volatility and focus on sustainable investing make it an attractive option for risk-averse investors seeking stable income. This report will analyze the performance, risks, and potential implications of investing in IGBH, considering recent market trends and data as of July, 2024.

Introduction

The IGBH ETF is designed to provide investors with exposure to investment-grade corporate bonds while mitigating interest rate risk. This report will delve into various aspects of IGBH, including its historical performance, volatility, dividend yield, and expense ratio. Additionally, we will compare IGBH with the iShares Interest Rate Hedged High Yield Bond ETF (HYGH) to provide a comprehensive understanding of its relative strengths and weaknesses.

Historical Performance and Dividend Yield

IGBH has demonstrated a fluctuating yet generally increasing dividend yield since its inception in 2013. The trailing twelve-month (TTM) dividend yield stands at 7.5%, a significant increase from its early years. The annual dividend yields for IGBH from 2014 to 2023 are as follows:

• 2023: 7.50% (TTM)
• 2022: 7.32%
• 2021: 3.84%
• 2020: 2.71%
• 2019: 2.39%
• 2018: 3.39%
• 2017: 6.06%
• 2016: 2.87%
• 2015: 2.62%
• 2014: 1.12%

In comparison, HYGH has consistently offered higher yields, with a TTM yield of 9.00% in 2023. However, IGBH’s lower volatility (0.92% compared to HYGH’s 1.03%) suggests that it may be a more stable investment, particularly for risk-averse investors.

Volatility and Maximum Drawdown

IGBH’s maximum drawdown since inception is -33.67%, which is higher than HYGH’s -23.88%. This indicates that IGBH has experienced more significant price declines during market downturns. However, its lower current volatility (0.92%) compared to HYGH (1.03%) suggests that IGBH experiences smaller price fluctuations, making it less risky in terms of day-to-day price movements.

Expense Ratio and Assets Under Management

One notable aspect of IGBH is its relatively high expense ratio of 0.65%. While this may impact overall performance, the ETF’s focus on sustainable investing and its growing assets under management (AUM) indicate strong investor interest. As of March 12, 2023, IGBH’s AUM increased from $245 million in March 2022 to $318 million, reflecting a growing trend towards sustainable investment options.

Sustainable Investing Focus

IGBH’s commitment to investing in companies that reduce their carbon footprint and promote sustainability aligns with the increasing demand for environmentally responsible investment options. Despite a recent price decline (3.25% as of March 12, 2023), this focus on sustainability may attract long-term investors who prioritize environmental, social, and governance (ESG) criteria.

Risks and Considerations

Investing in IGBH comes with several risks, including interest rate risk, credit risk, and the potential for declining income if interest rates fall. The value of debt securities typically decreases when interest rates rise, and there is no guarantee that dividends will be paid. Additionally, the ETF’s income may decline when interest rates fall, as most of the debt instruments held by the fund have floating or variable rates.

Comparative Analysis with HYGH

While HYGH offers a higher dividend yield (9.00% TTM) and a lower maximum drawdown (-23.88%), it also has higher volatility (1.03%). Investors seeking higher yields may prefer HYGH, but those prioritizing stability and lower risk may find IGBH more appealing. Furthermore, IGBH’s focus on sustainable investing may provide additional long-term benefits, aligning with the growing trend towards ESG investments.

Key Insights and Implications

1. Stable Income with Lower Volatility: IGBH’s 7.5% TTM yield and lower volatility make it an attractive option for investors seeking stable income with reduced risk.
2. Sustainable Investing Appeal: The ETF’s focus on sustainability aligns with the increasing demand for ESG investments, potentially attracting long-term investors.
3. Higher Expense Ratio: The 0.65% expense ratio may impact overall performance, but the growing AUM suggests strong investor interest despite this cost.
4. Interest Rate and Credit Risks: Investors should be aware of the risks associated with interest rate fluctuations and credit defaults, which could impact the ETF’s performance.

Conclusion

The iShares Interest Rate Hedged Long-Term Corporate Bond ETF (IGBH) offers a strong 7.5% yield with lower volatility compared to similar ETFs like HYGH. Its focus on sustainable investing and growing AUM indicate strong investor interest, despite a higher expense ratio and recent price decline. While there are inherent risks associated with interest rate and credit fluctuations, IGBH’s stability and ESG focus make it a compelling option for risk-averse investors seeking stable income. As the market continues to evolve, IGBH’s commitment to sustainability may provide additional long-term benefits, aligning with the broader trend towards responsible investing.

Forward-Looking Statement

IGBH presents a balanced investment opportunity with its strong yield, lower volatility, and sustainable investing focus. Investors should continue to monitor interest rate trends and market conditions, as these factors will significantly impact the ETF’s performance. With the growing emphasis on ESG criteria, IGBH is well-positioned to attract long-term investors seeking both financial returns and positive environmental impact.