UBS launches US corporate bond ETF with interest rate hedging
UBS Asset Management has launched UBS ETF (LU) Barclays US Liquid Corporates interest rate hedged UCITS ETF on London Stock Exchange, providing investors with access to a diversified basket of US corporate bonds while hedging against interest rate risk.
Following an extended period where interest rates were close to zero, the current environment is now showing signs of normalisation.
The European economy is slowly picking up while the US economy remains strong. Increases in interest rates are therefore likely to follow, as recently indicated by the Fed, which may trigger a fall in bond prices.
The fund helps to reduce the impact of interest rate rises, which enables investors to effectively separate out the credit risk of the bonds and be compensated for that discrete performance.
Andrew Walsh, head of UBS ETF sales UK & Ireland, says: “Those wishing to benefit from the favourable economic climate by investing in corporate bonds should consider minimising the interest rate risk in their portfolio. The mitigation of interest rate risk means that the bond portfolio becomes largely unaffected to interest rate hikes. This new UBS ETF with its interest rate hedge offers pure credit exposure in a cost-effective way.”
The fund tracks the Barclays US Liquid Corporates Index, a market cap weighted index offering exposure to liquid corporate bonds issued by investment grade companies. Bonds are screened by age, type and size. The index provides access to a diversified basket of bonds issued by companies from a number of different sectors, including the financial industry.