PowerShares rolls out eurozone HY bond ETF in partnership with PIMCO

Oct 13th, 2017 | By | Category: Fixed Income

Invesco PowerShares has unveiled a eurozone short-term high yield ETF to complement its existing $1.2 billion US-focused product.

PowerShares Source rolls out new euro bond ETF in partnership with PIMCO

The fund tracks short-term, euro-denominated corporate bonds issued within the euro zone with a rating below investment grade.

The PIMCO Euro Short-Term High Yield Corporate Bond Index Source UCITS ETF, launched in partnership with fixed income specialists PIMCO on Deutsche Börse’s Xetra and Frankfurt exchanges, offers access to the performance of short-term, euro-denominated corporate bonds issued within the eurozone with a rating below investment grade. Underlying the fund is the BofA Merrill Lynch 0-5 Year Euro Developed Markets High Yield 2% Constrained Index.

To be eligible for inclusion in the index, components must have a fixed coupon and an outstanding amount of at least €250 million. The index will have an issuer cap of 2%, which is lower than most of its peers and is designed to provide a more diversified portfolio. Emerging market issuers will also be excluded from the index, with the aim of providing better downside protection.

With interest rates and yields at such low levels, PowerShares believes the new ETF is likely to appeal to investors who are seeking higher income than they can get from government or investment grade corporate bonds.

Additionally, bonds with shorter maturities should be less sensitive to changes in interest rates than those at the longer end, offering a degree of protection from future interest rate normalisation.

“The European corporate segment looks in good shape,” said Paul Syms, head of fixed income product management at Invesco PowerShares (EMEA). “Company balance sheets are strong and on average they have plenty of cash to meet debt obligations. PIMCO’s expectation is for expected defaults to remain low relative to historical averages over the cyclical horizon.”

The ETF has been listed with two share classes; one offers accumulation of income generated within the fund, while the other distributes income to investors on a quarterly basis.

The fund’s TER is 0.44% due to a contractual fee waiver in place until July 2018. Its gross expense ratio is 0.50%.

It complements the existing PIMCO Short-Term High Yield Corp Bond Index ETF (LON: STHY) which provides access to the US short-term high yield corporate bond market. STHY has over $1.2 billion in assets under management and a TER of 0.55%.

Ryan Blute, EMEA head of global wealth management at PIMCO, said: “Investors in Europe continue to look for sources of yield amidst continued low interest rates.  The European high yield market has grown significantly over the last ten years and we are pleased to work with Invesco PowerShares to offer clients an ETF dedicated to this sector and as a complement to our existing US high yield ETF.”

The product offering in Deutsche Börse’s XTF segment currently comprises 1,177 ETFs.

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