Solactive expands suite of USD high-yield corporate bond indices

Jan 12th, 2018 | By | Category: Fixed Income

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Index provider Solactive has expanded its USD high-yield bond suite with three new indices, including a shorter duration play and a pair targeting different levels of systematic risk.

Steffen Scheuble, CEO of Solactive

Steffen Scheuble, CEO of Solactive

They include the Solactive USD High Yield Corporates Total Market 0-5 Year Index, the Solactive USD High Yield Corporates Total Market Low Beta Index, and the Solactive USD High Yield Corporates Total Market High Beta Index

All three indices have been licensed by Deutsche Asset Management to underlie Xtracker ETFs to be listed on the NYSE Arca.

The short-duration index comprises 461 high yield bonds (as of 31 December 2017) with terms to maturity of up to five years. It offers higher yields through its credit risk exposures while limiting interest rate risk with its shorter-dated securities. Just under half (47.6%) of the underlying 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 index underlies the Xtrackers Short Duration High Yield Corporate Bond ETF (SHYL US), which has an expense ratio of 0.20%

The low-beta index is composed of 523 lower beta bonds (as of 31 December 2017) with higher credit qualities for less volatile high yield exposures across the yield curve.  Three quarters (75%) of the constituent securities are BB-rated, 23.8% are rated B and 1.3% are CCC-rated.

The Xtrackers Low Beta High Yield Bond ETF (HYDW US) tracks the index and has an expense ratio of 0.25%.

The high-beta index offers exposure to higher beta bonds with lower credit qualities for investors seeking a more risk-on approach. Similar to the low-beta version, the high-beta index covers a range of maturities. As of the 2017 year-end, the index’s 574 bonds had a rating split of 27.9% BB, 49.6% B and 21.1% C.

The index forms the basis of the Xtrackers High Beta High Yield Bond ETF (HYUP US), which has a 0.35% expense ratio.

Each index is rebalanced monthly and has a 3% maximum issuer cap, with coupons reinvested on each monthly rebalancing date.

In terms of geographic exposure, the indices have over 85% of their exposure coming from North America, around 10% from Europe and the remainder mostly from Asia.

Commenting on the launch, Steffen Scheuble, CEO of Solactive, said: “It is well known that high-yield corporate bonds are an attractive alternative for higher returns within the fixed income market. By expanding the Solactive USD High Yield Corporates Index range, we explore alternative strategies that will allow market participants to easily customize their risk exposure within this segment to an extent that is unique in the market.”

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