iShares expands currency-hedged range with emerging markets bond ETF

Jul 9th, 2013 | By | Category: Fixed Income

iShares, the exchange-traded funds (ETFs) platform of asset management giant BlackRock, has added a euro-hedged emerging markets fixed income ETF to its growing suite of currency-hedged products.

iShares expands currency-hedged range with emerging markets bond ETF

Stephen Cohen, Head of Investment Strategy, iShares.

Listed on the London Stock Exchange (LSE), the newly launched iShares JP Morgan $ EM Bond EUR Hedged UCITS ETF (EMBE) offers investors euro currency-hedged exposure to dollar-denominated sovereign and quasi-sovereign bonds from emerging markets countries.

The underlying index of the fund is the JP Morgan Emerging Markets Bond Index Global Core Index (EUR hedged), which it tracks via a physically backed sample-based replication methodology.

The index includes only bonds with a minimum remaining time to maturity of two years at inclusion and a minimum amount outstanding of $1 billion. Maturities stretch from two years at inclusion to more than 20 years. The average maturity of the index is 11.72 years with a yield to maturity of 5.26% (as of 31 May 2013).

The index is comprehensive in its coverage and includes a vast array of countries, ranging from the likes of Russia, Turkey, Brazil, Indonesia, Mexico and the Philippines, each with a little over 6% weight, to countries with much smaller representations such as Egypt, Mongolia, Azerbaijan, Costa Rica and El Salvador, each with a weight of less than 0.4%. In total, some 39 emerging market countries are included in the index.

The fund follows a static monthly hedging index methodology with dollar exposure of the fund hedged back into euros using one-month currency forwards. This enables investors to reduce the impact of fluctuations between the portfolio’s base currency (euros) and the currency in which assets are denominated (dollars).

Commenting on the launch, Stephen Cohen, Head of Investment Strategy at iShares EMEA said: “Investors are beginning to place more emphasis on mitigating the risk that currency exposure can introduce into a portfolio, especially during periods of heightened currency volatility. This new fund, with its robust hedging methodology, helps ETF investors separate and control currency risk without having to self-manage a currency overlay programme or separate currency hedges.”

The fund has a total expense ratio of 0.50% and follows the launch in June of two other currency-hedged fixed ETFs sponsored by iShares: the iShares Global High Yield Corp Bond GBP Hedged UCITS ETF (GHYS) and the iShares Global Corporate Bond EUR Hedged UCITS ETF (CRPH), both listed on the LSE.

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