iShares ETF Outperforms Main Holding by 15 Points in 2022
iShares Interest Rate Hedged Corporate Bond ETF (LQDH) has shown impressive performance in recent years. It has outperformed its main holding, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), by 15 percentage points in 2022, a year marked by significant interest rate surges.
LQDH's strong performance can be attributed to its strategic use of derivatives to mitigate interest rate risk. The fund holds interest rate swap contracts with varying maturities, allowing it to protect against fluctuations in mortgage interest rates. This approach has proven successful, with LQDH outperforming LQD by 32 basis points in annualized return since its launch on 5/27/2014.
The fund's holdings are primarily invested in LQD, with this single issuer accounting for 95.9% of its asset value. However, LQDH's exposure is not limited to LQD. It also holds other investments, with the top issuer outside of LQD weighing about 3% of the fund's value. This diversification helps to manage risk.
LQDH's distributions have seen a significant increase over the years. From $2.73 per share in 2015, the annual sum of distributions has grown by 157% to reach $7.02 in 2024. These distributions are paid monthly, providing a steady income stream for investors.
In terms of performance metrics, LQDH has a 12-month trailing yield of 7.01% and a 30-day SEC yield of 4.41%. Its net expense ratio stands at 0.24%, indicating a low cost for investors. The fund tracks the BlackRock Interest Rate Hedged Corporate Bond Index, providing exposure to a broad range of investment-grade corporate bonds.
LQDH's strong performance, strategic use of derivatives, and low expense ratio make it an attractive option for investors seeking exposure to corporate bonds. Its ability to outperform its main holding and manage risk effectively has been evident since its launch in 2014. With a growing distribution yield and a 52-week high of approximately 91.53 EUR, indicating strong liquidity, LQDH continues to demonstrate its market presence and potential.
