A strong management team and sound investment process underpin iShares Interest Rate Hedged Corp Bd ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy’s management team earns an Above Average People Pillar rating. The strategy's effective investment approach earns an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a substantial overweight position in corporate bonds and AA rated bonds compared with category peers. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

iShares iBoxx $ Investment Grade Corporate Bond ETF

Morningstar's style-agnostic investment process evaluation looks for strategies that should be able to outperform their Morningstar Category index on a risk-adjusted basis over time. iShares Interest Rate Hedged Corp Bd ETF earns an Above Average Process Pillar rating.    The leading factor in the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The firm's five-year retention rate of 92% also strengthens the process. Lastly, the process is limited by its parent firm's risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.1 stars. A lower star rating suggests that the firm has struggled to outperform on a risk-adjusted basis.

 Compared with other funds in the Ultrashort Bond Morningstar Category, this fund has been consistently sensitive to interest-rate changes over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Relative to the average strategy in the category, the managers have been meaningfully overweight corporate debt in recent years. In the latest month, the strategy has relatively overweighted corporate bonds compared with its peers as well. Additionally, there's been an underallocation from AA rated bonds over the past few years. Similarly, in recent months, the strategy also had less exposure to AA rated bonds than peers. Finally, during the past few years, the fund leaned towards debt with 10- to 15-year maturities. In this month, the strategy also leaned more towards debt with 10- to 15-year maturities compared with its peers.

 This strategy's 12-month yield is 7.8%, higher than its average peer's 4.7%. It also has a 4.5% 30-day SEC yield (a measure similar to yield-to-maturity). While a higher yield may deliver more income, it also tends to indicate higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A.

Above Average

Process

iShares Interest Rate Hedged Corp Bd ETF's strong team drives the strategy's Above Average People Pillar rating. There are two managers listed on the fund: James Mauro, Karen Uyehara. Experience on the team is abundant, with 13 years of average portfolio management experience. Together, they manage a total of 114 strategies, with solid long-term prospects. The strategies average a Silver asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

BlackRock offers compelling options across asset classes and vehicles. It earns an Above Average rating for Parent. 
The firm’s approximately USD 8 trillion in assets under management, as of Sept. 30, 2022, gives it unparalleled scale and influence. It is a market-leading index fund provider globally, and its iShares exchange-traded fund franchise offers a low-cost lineup of core funds that investors can use to build a well-diversified portfolio for dirt cheap. The firm can be more adventurous in its ETF launches than some peers, so not everything it launches is appropriate for the masses. As a result, it is likely to have more ETF closures than peers that stick to the basic building blocks.  
The firm’s active fixed-income and multi-asset efforts also stand out as some of the best in the industry. Those benefit from BlackRock’s commitment to building a first-class risk management system via its Aladdin analytics software. The software is also available for sale to other firms and has proved to be a popular option for competitors, a testament to its usefulness. 
More recently, the firm has shifted its focus to ESG offerings and incorporating ESG across its investment lineup, leading to a political backlash in the United States.
BlackRock isn’t the best at everything it tries to do, but retail investors, financial advisors, and large institutions could all build robust portfolios using BlackRock’s products.

Parent

iShares Interest Rate Hedged Corporate Bond ETF

LQDH tracks an index that holds iShares iBoxx USD Investment Grade Corporate Bond ETF (LQD), which targets USD-denominated investment corporate bonds, while mitigating duration risk.

iShares Interest Rate Hedged Corporate Bond ETF is a fixed income ETF that hedges against rising interest rates. LQDH isolates corporate credit spreads and gains when spreads tighten, but loses value when spreads widen. Investment grade corporate spreads are currently at historic lows, indicating a potential future widening and lower NAV for LQDH.

LQDH: A Corporate Spreads Play (Rating Downgrade)

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M&A was almost dormant in 2023. In the US, as a proportion of the market value of the benchmark equity indices, it fell to its lowest level in 20 years, according to McKinsey. Credit investors are not traditionally supposed to be fans of M&A, and it's true we are wary of leveraging M&A, where debt is loaded onto balance sheets to buy competitors. We are seeing a comeback for M&A that we think is likely to continue through 2024.

The Credit Opportunity In M&A

Bond funds that hedge interest rate risk have performed better than those that don't in recent years. The iShares Interest Rate Hedged Corporate Bond ETF is a cost-effective option for investors seeking interest rate hedged exposure to investment-grade corporate bonds. The LQDH ETF offers a unique blend of features, including investment-grade corporate bond exposure with interest rate hedging, setting it apart from similar ETFs.

LQDH: A Hedge For The Fed Not Pivoting

The iShares Interest Rate Hedged Corporate Bond ETF tracks a diversified portfolio of U.S. dollar-denominated investment grade corporate bonds. The fund hedges out interest rate risk by owning the iShares iBoxx $ Investment Grade Corporate Bond ETF and a portfolio of interest rate swaps. The LQDH ETF has delivered strong returns in the past year, but investors should not expect the same level of returns going forward.

LQDH: What Explains The ETF's Outperformance?

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LQDH: Credit Spreads Probably Too Low

The iShares Interest Rate Hedged Corporate Bond ETF is a fixed-income exchange-traded fund. The vehicle seeks to track the investment results of an index designed to mitigate the interest rate risk of a portfolio composed of U.S. dollar-denominated, investment-grade corporate bonds.

LQDH Will Likely Underperform In A Decreasing Rate Environment

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To hedge or not to hedge?

Bond funds that don't lose money when interest rates rise? Sounds too good to be true, doesn't it?

News for iShares Interest Rate Hedged Corporate Bond ETF ETF (LQDH)