IGHG: A Defensive Income Play in the Era of High Interest Rates

In an era where central banks have aggressively raised interest rates to combat inflation, fixed-income investors face a paradox: higher yields come with heightened risk. Traditional bond portfolios, particularly those with long durations, are vulnerable to price declines as rates climb. Enter ProShares Investment Grade—Interest Rate Hedged ETF (IGHG), a product designed to navigate this treacherous landscape by eliminating interest rate risk while preserving credit exposure and income potential. For investors seeking a defensive income strategy, IGHG offers a compelling case.

The Hedging Mechanism: Zero Duration, Full Credit Exposure

IGHG’s strategy hinges on a simple yet powerful concept: it holds a long position in investment-grade corporate bonds while simultaneously shorting U.S. Treasury bonds in a duration-matched manner. This creates a net effective duration of 0.02 as of July 31, 2025 [1], effectively neutralizing the ETF’s sensitivity to interest rate fluctuations. Unlike traditional bonds, which lose value when rates rise, IGHG’s structure ensures that gains from the corporate bond component offset losses from the Treasury short. This allows investors to retain full exposure to credit risk and return potential without the drag of duration risk [2].

The strategy’s elegance lies in its ability to decouple income generation from interest rate volatility. While short-duration or floating-rate bonds may offer some protection, they often sacrifice yield and credit quality. IGHG, by contrast, maintains a diversified portfolio of investment-grade corporate bonds, which typically offer higher yields than Treasuries or short-duration alternatives [4].

Historical Performance: Outperforming in Rising Rate Environments

The real-world effectiveness of IGHG’s approach is evident in its track record. During the prolonged period of rising 10-year Treasury yields from March 2014 to December 2024, IGHG’s index outperformed both traditional duration-matched investment-grade bonds and floating-rate note indices [4]. This is a critical differentiator in today’s market, where the Federal Reserve’s rate hikes have left many bond strategies reeling.

For example, as of July 2025, IGHG’s SEC 30-Day Yield stood at 5.26% [3], significantly higher than the yields of short-duration or floating-rate ETFs. This performance is not accidental but structural: by hedging duration risk, IGHG avoids the price depreciation that plagues traditional bonds during rate hikes, allowing it to compound returns more effectively [2].

Income Generation: Monthly Distributions and Cost Efficiency

IGHG’s appeal as an income play is further bolstered by its monthly dividend schedule and competitive expense ratio. The ETF recently declared a dividend of $0.3370 per share, with a 5.10% yield [5], making it a reliable source of cash flow for income-focused investors. Its expense ratio, at 0.35%, places it in the lowest fee quintile among peers [3], enhancing its attractiveness in a market where high costs can erode returns.

A Strategic Fit for Today’s Market

With the 10-year Treasury yield hovering near 4.5% as of August 2025, the risks of duration-driven bond strategies remain acute. IGHG’s zero-duration structure positions it as a defensive alternative for investors who want to capitalize on corporate bond yields without bearing the brunt of rate volatility. Its historical outperformance during rising rate periods, combined with its cost efficiency and consistent income, makes it a standout option in a high-interest-rate environment.

For those wary of the Fed’s tightening cycle or seeking to hedge against further rate hikes, IGHG offers a balanced solution. It is not a speculative play but a structural innovation in fixed-income investing—one that aligns with the dual goals of preserving capital and generating income in an era of uncertainty.

Source:
[1] IGHG | Investment Grade - Interest Rate Hedged ETF,
https://www.proshares.com/our-etfs/strategic/ighg
[2] The Current Case for a Rate Hedged Bond Strategy,
https://www.proshares.com/browse-all-insights/insights/case-for-rate-hedged-bond-strategy
[3] ProShares Investment Grade—Interest Rate Hedged (IGHG),
https://finance.yahoo.com/quote/IGHG/performance/
[4] Consider Interest Rate Hedged Bond ETFs Rather Than ...,
https://www.proshares.com/browse-all-insights/insights/consider-interest-rate-hedged-bond-etfs-rather-than-floating-rate-bond-strategies
[5] IGHG Dividend History, Dates & Yield,
https://stockanalysis.com/etf/ighg/dividend/