This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

New High Yield Bond Fund Hedges Out Interest Rate Risks

Stocks in this article: HYG HYHG

NEW YORK ( TheStreet) -- There are several risks to investing in the bond market. The big risk five years ago was credit risk; the risk that companies would default. Many companies' fortunes have improved since the financial crisis and many analysts believe that risk of default has decreased.

Another form of risk to investing in the bond market is interest rate risk which is the consequence of holding longer dated bonds when interest rates move higher. As a rule of thumb the price on a 10 year bond will drop by about 8% for each percentage point that interest rates increase.

If an investor owns an individual bond when this happens then they can wait until maturity and get all of their money back at the bond's par value but they will be stuck with a bond that is paying them less than the prevailing market. With a bond fund there is no par value to return back to, a bond fund can go down and stay down.

It is with these risks in mind that Pro Shares launched the High Yield-Interest Rate Hedged ETF (HYHG). HYHG is one of several recently listed ETFs targeting the high yield market and there have also been several funds that seek to hedge out the risk of rising interest rates and HYHG does both.

The fund has two strategies under the hood. One is simply a portfolio of high yield bonds. The average maturity is seven years and there are specific rules on how the bond portfolio is constructed. No more than 2% of the portfolio can come from the same issuing company. All of the bonds in the portfolio must come from issues that are at least $1 billion.

The largest sector in the portfolio is industrial service at 36% of the fund followed by industrial manufacturers 24% and energy at 17%. There are other smaller sector exposures including financials which only make up 4% of the portfolio.

The credit quality breakdown of the fund is 43% each in BB and B rated issues with the remainder in CCC or lower. ProShares is reporting a yield of 5.69% but the fund has only been trading since late May and only paid three dividends up to this point, any future payouts could be more or less than the current 5.69%.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,582.35 +225.48 1.30%
S&P 500 2,026.61 +13.72 0.68%
NASDAQ 4,709.8710 +65.5590 1.41%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs