Negative sentiment surrounding the US high yield corporate bond market since the start of the year appears to have reversed, according to data compiled by Bloomberg. The research showed that inflows into the iShares iBoxx High Yield Corporate Bond ETF (NYSE Arca: HYG), the largest exchange-traded fund tracking this segment, surpassed $1.5bn over six days in mid-February.
Last month exchange-traded fund provider Lyxor announced that it was slashing the fees on a number of its core London-listed UK and US bond ETFs. The move was the latest statement of intent from the Paris-headquartered firm, which had one of its best years in 2015 and is fast emerging as a strong alternative and credible challenger to the industry’s giants. This year marks the provider’s 15th anniversary and it expects its success to continue. ETF Strategy’s Rebecca Hampson talks to Arnaud Llinas, the firm’s global head of ETFs and indexing, about what 2016 holds and why it is now pushing the fixed income range.
Global exchange-traded fund provider iShares has suspended the creation of new shares in its iShares Gold ETF (NYSE Arca: IAU) after a surge in investor demand caused a temporary exhaustion of shares currently registered with the US Securities & Exchange Commission. The ETF, which experienced a larger amount of creation activity during February than it has in any one month over the last decade, saw its assets expand by $1.4bn year-to-date, bringing total AUM above $7.7bn (as of 4 March 2016). Investors have turned to safe-haven assets, such as gold amid heightened market volatility across global equities since the beginning of the year.
The indexing division of the New York Stock Exchange (NYSE) has unveiled a new family of indices that aims to isolate pure sector returns by hedging market risk. The indices are designed to serve as the basis for investable index-linked products, such as exchange-traded funds. The NYSE US Pure Exposure Index Family offers investors the ability to act on persistent trends in pure sector performance, whether positive or negative. In addition, while the returns of conventional sector indices are highly correlated, the returns of pure sector indices are largely uncorrelated, creating new hedging and portfolio allocation tools.
Short and leveraged (S&L) exchange-traded fund provider Direxion Investments has changed the underlying reference index on six of its triple-leveraged long and short US Treasury bond ETFs. The move will see the ETFs switch from index provider NYSE to the Intercontinental Exchange. Eric Falkeis, Chief Operating Officer, Direxion, commented: “Choosing Intercontinental Exchange as the new benchmark index provider for our Treasury ETFs is the result of a thorough due diligence process. Their proven expertise in index design and calculation services were important factors in our decision.”
Investment research house Morningstar has published a report examining the “active share” data of European equity funds purporting to be actively managed. The data shows that 20% of such funds qualify as “closet indexers”, leaving investors with active-management-type fees despite the fund behaving like a passive index tracker. The report appears to be yet another example supporting the case for embracing low-cost index funds such as exchange-traded funds, which have been shown to consistently outperform their active counterparts on a net-of-fees basis.
Nomura has launched four exchange-traded funds on the SIX Swiss Exchange, becoming the first Asian issuer to list on the exchange. The ETFs provide currency-hedged exposure to two of Japan’s foremost equity indices, the smart beta JPX-Nikkei 400 and the widely-followed Nikkei 225. Offered in EUR-hedged and USD-hedged formats, the ETFs allow investors to gain exposure to Japanese equities, while protecting against adverse yen depreciate. Nomura’s Jean-Philippe Royer said: “Nomura is the biggest Japanese equities ETF manager, but until today very few investors in Switzerland could invest in our ETFs. Through the listing on SIX Swiss Exchange, we can now provide the broader Swiss investor community with local access to Nomura’s best-in-class products.”
US high-yield bonds are a compelling alternative to US equities given the continued attractive yields of the asset class, according to London-based ETF issuer Source. Despite the fact that US high-yield spreads have gone above 7% for only the sixth time since 1986, the issuer believes that the asset class still represents a strong opportunity for investors. Fabrizio Palmucci, Fixed Income Specialist at Source, said: “In our view, US high-yield is a compelling substitute for equities given the attractive yields, and also offers better downside protection…Although the volatility has been higher in the US lately, even with a yield of 10% the US market looks compelling to us”.
Vanguard, the world’s second largest provider of exchange-traded funds, has released a report showing that investors can achieve superior performance from a total return framework in portfolio allocation compared to an income approach. The report, which addresses portfolio allocation decisions related to investors with specific liquidity needs, such as retirees, compares the characteristics of two strategies – an income-focused approach and a total return approach. Its findings show that the adoption of a total return framework provide superior diversification, withdrawal control, tax efficiency, and portfolio longevity compared to an income approach.
The London Stock Exchange (LSE) has announced that a record number of exchange-traded funds were listed on its platform last month. February saw providers list 30 ETFs on the bourse with half of these focused on the fixed income sector. The strong listing activity brings the total number of ETFs/ETPs launched on the LSE this year to 37 ETFs/ETPs, 11 more than for the same period last year. The uptick in listings comes as the industry saw assets hit a record high of $372 billion last year, according to ETFGI.