Deutsche unveils cheapest US-listed ETF to track high yield bonds

Dec 7th, 2016 | By | Category: Fixed Income

Deutsche Asset Management has launched the Deutsche X-trackers USD High Yield Corporate Bond ETF (NYSE: HYLB). At a total expense ratio (TER) of 0.25%, it is the cheapest high-yield ETF in the US market.

Deutsche unveils lowest cost ETF to track USD high yield bonds

Fiona Bassett, Head of Passive in the Americas for Deutsche Asset Management.

Fiona Bassett, Head of Passive in the Americas for Deutsche Asset Management, commented: “For investors seeking pure high-yield beta exposure as part of their diversification strategy in their overall asset allocation, they can now do so in a fast and cost-effective way through the Deutsche X-trackers USD High Yield Corporate Bond ETF.”

The ETF may appeal to investors looking to boost their income as government stimulus across Asia, Europe and the United States have pushed bond yields to historically low levels and in certain circumstances into negative territory.

The fund may also offer investors a degree of protection from Federal Reserve interest rate increases as a relatively larger proportion of these bond’s value is derived from their higher coupon payments, which remain unchanged throughout the bond’s maturity. “In addition, as the market is anticipating an interest-rate hike by the US Federal Reserve Board, the high-yield market tends to be less impacted by rate moves, shielding investors from potential volatility,” said Bassett.

According to Deutsche’s research, high yield bonds exhibit comparable volatility versus other fixed-income opportunities and lower volatility than the US equity market.


Source: Deutsche Asset Management.

The ETF tracks the Solactive USD High Yield Corporates Total Market Index which references the performance of corporate high yield bonds issued in US dollars with a remaining time to maturity between one and 15 years and a minimum amount outstanding of $400m. The issuer’s country of domicile is not relevant although, as of 6 December 2016, just over 80% of the fund is invested in bonds issued by US-domiciled firms. The index is market cap weighted and rebalanced monthly while a single issuer cap of 3% is used.

There are currently 435 issuers within the index, its average duration is 3.5 years and the yield-to-worst is 5.9%. The credit ratings to which the index is most exposed are BB (48.2%), B (33.8%) and CCC (9.9%).

The index is up 14.0% over the past year.


Source: Solactive.

There are a number of ETFs in the US offering access to the US dollar denominated high yield market, the largest of which are provided by iShares and SPDR ETFs. The $16.9bn iShares iBoxx $ High Yield Corporate Bond ETF (NYSE: HYG) has a TER of 0.50%, while the SPDR Bloomberg Barclays High Yield Bond ETF (NYSE: JNK) has a TER of 0.40%.

In Europe, iShares offers the iShares $ High Yield Corp Bond UCITS ETF (LON: SHYU) which also has a TER of 0.50% and has $3.3bn in AUM. Coming in at significantly lower fees, the Lyxor BofAML $ High Yield Bond UCITS ETF (LON: USHY) charges 0.30% and has AUM of $55m.

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