Deutsche Launches High Yield Bond ETF

Deutsche Asset Management has launched a new fixed income fund focused on providing exposure to the high-yield space.

Xtrackers Short Duration High Yield Bond ETF SHYL tracks the Solactive USD High Yield Corporates Total Market 0-5 Year Index and holds a portfolio of bonds that primarily target the short end of the yield curve.

Fund Characteristics

The fund’s index seeks to measure the performance of short-term publicly issued U.S. dollar-denominated, speculative-grade corporate debt. In a few days of trading, it has amassed assets of $15.0 million and has a moderate expense ratio of 20 basis points a year. It holds 175 junk bonds in its portfolio. The fund bears less concentration risk as only a shade more than 17% is allocated to the top 10 holdings.

From a sector look, Consumer cyclical, Industrials and Energy are the top three allocations of this fund, with 14.9%, 14.0% and 11.7% exposure, respectively (as of Jan 11, 2018).

From a credit rating perspective, the fund has 47.8% exposure to BB rated bonds, 35.3% to B rated bonds, 15.5% to CCC rated bonds and 0.3% to C rated bonds. Therefore, due to its high yield focus, the fund bears default risk. However, it seeks to invest in the higher end of the junk bond space.

How Does it Fit in a Portfolio?

This ETF is a unique offering, as it gives investors a global exposure to the high-yield bond space. As a result, this ETF is a good way to diversify investors’ portfolio by giving exposure to the high yield space in exchange for assuming higher credit risk. Moreover, this ETF also offers some geographical diversification, as it invests around 86.1% exposure in U.S. bonds and 13.9% in international bonds.

Competition

The fund faces a lot of competition from other high-yield funds in the space. Below we discuss a few ETFs that seek to provide exposure to the high-yield space (see all High-Yield/Junk Bond ETFs here).

SPDR Bloomberg Barclays (LON:BARC) High Yield Bond ETF JNK

This fund has AUM of $13.4 billion and seeks to provide exposure to high-yield bonds. It charges 40 basis points as fees per year and holds 953 junk bonds in its portfolio. From a sector look, Industrial, Finance and Utility are the top three allocations of this fund, with 86.9%, 9.5% and 3.2% exposure, respectively (as of Jan 11, 2018). The fund targets the short-to-intermediate end of the yield curve as it has an average maturity of 6.21 years and option adjusted duration of 3.73 years. The fund has returned 6.0% in a year.

PowerShares Fundamental High Yield Corporate Bond Portfolio PHB

This fund has AUM of $1.3 billion and seeks to provide exposure to high-yield bonds. It charges 50 basis points as fees per year and holds 257 junk bonds in its portfolio. From a sector look, Consumer Discretionary, Energy and Industrials are the top three allocations of this fund, with 24.1%, 16.5% and 11.6% exposure, respectively (as of Jan 12, 2018). The fund targets the short to intermediate end of the yield curve as it has a weighted average maturity of 5.61 years and an effective duration of 3.56 years. The fund has returned 4.6% in a year.

PIMCO 0-5 Year High Yield Corporate Bond Index Fund HYS

This fund has AUM of $1.8 billion and seeks to provide exposure to high-yield bonds. It charges 55 basis points as fees per year and holds 416 junk bonds in its portfolio. From a sector look, High Yield Credit, U.S. Government-Related and Investment Grade Credit are the top three allocations of this fund, with 96.1%, 2.9% and 2.1% exposure, respectively (as of Dec 31, 2017). The fund targets the short end of the yield curve as it has a weighted average maturity of 2.85 years and an effective duration of 1.86 years. The fund has returned 5.5% in a year.

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