Deutsche Asset Management has expanded its range of US-listed ETFs with the launch of the Xtrackers Short Duration High Yield Bond ETF (SHYL US), targeting short-term, US dollar-denominated corporate debt with credit ratings below investment grade.
Low duration strategies help to mitigate the risk of rising interest rates negatively affecting bond prices.
Listed on the NYSE Arca, the fund tracks the Solactive USD High Yield Corporates Total Market 0-5 Year Index.
To be eligible for inclusion in the index, an individual bond must have at least $400 million in outstanding face value, and the issuer must have at least $1 billion in outstanding face value.
The composite rating calculated from available ratings among the three major ratings agencies should be sub investment grade, or “junk”, reflecting a rating between BB+ and C (both inclusive).
Additionally, bonds must have a time remaining to maturity of no more than five years and an original maturity of less than 15 years. Constituents are weighted by their respective market values with an issuer cap of 3%.
The index, which currently contains 477 bonds from 272 issuers, is reconstituted and rebalanced monthly.
SHYL replicates the performance of the index through physical sampling and currently holds 170 securities in its portfolio.
Low-duration strategies help to limit interest-rate risk in rising-rate environments, while the fund will likely appeal to investors looking for a yield pick-up relative to similar investment-grade offerings.
As can be expected, the US dominates country exposure with over 85% of the portfolio weight; European firms account for just under 10% of the total weight, while 3% is in Asian firms and 2% in Canadian firms.
SHYL has been launched with seed money of $15m and has a total expense ratio (TER) of 0.20%.
In Europe, the largest ETF to provide broadly comparable exposure to SHYL is the PIMCO Short-Term High Yield Corporate Bond Source UCITS ETF (STHY LN), which has $1.3bn in assets under management (AUM) and charges management fees of 0.55%. An alternative to this is the more competitively priced Lyxor BofAML $ Short Term High Yield Bond UCITS ETF (STUB LN), which debuted in July 2017. This fund costs 0.30% and is starting to gain traction with investors, currently hosting $60m in assets.