KraneShares partners with Nikko on active Asia high-yield bond ETF

Aug 4th, 2021 | By | Category: Fixed Income

KraneShares has unveiled an actively managed fixed income ETF on NYSE Arca targeting opportunities in Asia Pacific’s high-yield bond market.

Jonathan Krane, CEO of KraneShares.

Jonathan Krane, CEO of KraneShares.

The KraneShares Asia Pacific High Yield Bond ETF (KHYB US) has been created by repurposing the previously launched KraneShares CCBS China Corporate High Yield Bond USD Index ETF.

The new strategy is sub-advised by Nikko Asset Management, one of Asia’s largest asset managers overseeing more than $282 billion in assets.

Asia’s bond market has witnessed strong, steady growth over the last decade, reflecting the region’s rising economic significance.

The JP Morgan Asia Credit Index has risen from a market capitalization of $250 billion in 2010 to over $1.2 trillion in 2020 – an increase of 368%.

According to Nikko, investors should take note of Asian bonds as the region offers high yields with risk levels that are more favourable than most other emerging markets.

As of June 2021, Asian high-yield corporate bonds, as referenced by the Bloomberg Barclays Asia USD High Yield Diversified Credit Index, had an average yield of 7.9% compared to 4.6% for US high -bonds, while the segment’s default rate has been lower than that of other emerging market regions in six of the past nine years.

Jonathan Krane, Chief Executive Officer of KraneShares, said: “We believe the Asia ex-Japan High Yield bond market’s comparatively high yields, low representation in global bond indexes, and historically low default rates make it a compelling opportunity for investors. KraneShares is proud to partner with Nikko and leverage their fixed income expertise to bring the Asia high-yield bond market to investors.”

Liang Choon Koh, Head of Asia Fixed Income at Nikko Asset Management Asia, added: “We have seen considerable demand for US dollar-denominated high-yield Asia bond products globally from investors drawn by the stable underlying macro trends, healthy credit fundamentals, attractive returns, and valuations. We are excited to work with KraneShares to bring this strategy to a US and international audience.”

The fund comes with an expense ratio of 0.69% and currently houses around $10 million in assets. Distributions are made to investors on a monthly basis.

Investment strategy

The fund is benchmarked to the JP Morgan Asia Credit Index (JACI) Non-Investment Grade Corporate Index, which reflects exposure to US dollar-denominated high-yield debt issued by corporate, quasi-sovereign, and sovereign issuers located in the Asia-Pacific region, excluding Japan.

Nikko adopts an unrestrictive definition of what defines Asia Pacific, which includes, for example, foreign companies with significant assets or revenue tied to the region.

According to the fund’s prospectus, Nikko combines top-down macro research and bottom-up credit research to construct the portfolio. The firm utilizes a proprietary process that involves quantitative and qualitative factors assessing an issuer’s credit profile, security value, and relative value compared to similar securities.

The ETF is unconstrained and may invest freely in securities of any duration and in companies from any market capitalization or sector. This may occasionally lead to relatively concentrated positions in individual issuers or countries.

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