Deutsche launches three new USD high-yield bond ETFs on NYSE

Jan 15th, 2018 | By | Category: Fixed Income

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Deutsche Asset Management (Deutsche AM) has launched three new USD high-yield bond ETFs on the NYSE Arca, each offering investors different credit and interest-rate risk exposures.

Fiona Bassett, Deutsche AM's head of passive asset management in the Americas.

Fiona Bassett, Deutsche AM’s head of passive asset management in the Americas.


Fiona Bassett, Deutsche AM’s Head of Passive Asset Management, Americas, stated “In today’s low interest rate environment, fixed income investors are looking for new sources of yield. Our expanded Xtrackers suite of high yield bond ETFs uses rules-based strategies to provide exposure to different levels of credit and interest rate risk, allowing investors to manage credit and duration exposure for a more customized solution.

“SHYL will allow investors to gain cost efficient exposure specifically to the short duration high yield bonds. In addition, the unique construction methodology of HYUP and HYDW may help investors achieve their desired level of yield and credit risk while maintaining varied exposure to the underlying high yield market.”

Each ETF offers a unique investment play on the high-yield corporate bond market and aims to track the performance, net of fees and expenses, of its respective benchmark index.

The three funds are the Xtrackers Short Duration High Yield Corporate Bond ETF (SHYL US), the Xtrackers High Beta High Yield Bond ETF (HYUP US) and the Xtrackers Low Beta High Yield Bond ETF (HYDW US).

They are linked to the Solactive USD High Yield Corporates Total Market 0-5 Year Index, the Solactive USD High Yield Corporates Total Market High Beta Index and the Solactive USD High Yield Corporates Total Market Low Beta Index.

The short duration ETF provides investors with high-yield exposure to corporate bonds with zero to five-year maturities. With an expense ratio of 0.20%, it has the lowest fees of the three ETFs.

The index underlying the ETF comprises 461 high-yield bonds (as of 31 December 2017). Just under half (47.6%) of the bonds are rated BB (highest quality non-investment grade), 35.3% are rated B (speculative non-investment grade) and 15.5% are rated C (higher risk non-investment grade).

The high beta ETF is a viable option for investors seeking higher credit risk over a range of maturities. The fund is likely to have the highest volatility of the three ETFs given its composition of higher yielding, higher beta bonds. It has a 0.35% expense ratio.

The index corresponding to the ETF has 574 underlying bonds (as of 31 December 2017), which have a rating split of 27.9% BB, 49.6% B and 21.1% C. For a security to be eligible for inclusion in the index, its yield needs to be higher than that of its sector’s median yield.

Investors seeking less volatile high-yield bond exposure could opt for the low beta ETF, which is made up of higher credit quality, but still technically high-yielding, bonds. For a security to be eligible for this ETF, its yield needs to be lower than that of its sector’s median yield. The underlying index contains 523 bonds (as of 31 December 2017) of varying terms to maturity. Three quarters (75%) of the constituent securities are BB-rated, 23.8% are rated B and 1.3% are CCC-rated. The fund’s expense ratio is 0.25%.

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