A number of ETF issuers have launched new products lately, bringing the total number of funds just over the 1,500 mark. While a few of these funds have been targeting brand new niches, there has also been a rising trend of ‘getting back to basics’ for issuers, as many have looked to round out lineups and plug up any weak spots.
High Yield ETFs in Focus
At this time, Guggenheim, one of the industry veterans, has launched 2 high yield corporate bond ETFs. This came at a time when investors were seeking high yields from the bond markets. While Guggenheim already has an array of ETFs which track specific maturities, these ETFs are more target based (Read Guggenheim Files for ASEAN ETF).
The recent launches include Guggenheim BulletShares 2019 High Yield Corporate Bond ETF (BSJJ) and Guggenheim BulletShares 2020 High Yield Corporate Bond ETF (BSJK).
Both these ETFs are designed to track the performance of the high yield corner of the fixed income world while putting focus on securities which have a fixed maturity date.
BSJJ seeks to track the performance of high yield corporate debt notes which have an effective maturity in 2019. The fund took its start with an AUM of $2.5 million.
BSJK tracks the performance of high yield corporate debt notes maturing in 2020. Like BSJJ it also has an AUM of $2.5 million.
Both the products charge 42bps in fees and expenses.
Why These Might Be in Focus
In the latest FOMC meeting, Ben Bernanke put QE3 tapering on hold until pronounced growth is seen in the economy. Instead, it lowered the GDP growth outlook to 2%–2.3% from 2.3%–2.6% for this year, citing concerns of tight fiscal policy and higher mortgage rates. (Read: Time to Buy Treasury Bond ETFs?)
Further, the Fed reiterated that interest rates would stay near zero and would not be increased until the unemployment rate falls below 6.5% and inflation exceeds their target.
This surprising move cheered the market and breathed life into the depressed bond world. Investors have started to shift their focus towards the debt ceiling, especially high yield bonds, as they are poised to be upcoming opportunities for investors with a high yield appetite. (Read: A Better Yield ETF? UBS Launches High Income ETN).
Why do these ETFs look appealing?
Both the products have a unique feature of held-to-maturity which might interest investors who seek principal protection along with high interest rate hike.
In fact, both these ETFs are low in terms of costs as their fees are much lower than most of the other contenders in the space. The average expense ratio in the high yield bond category stands at 56bps. (Find all High Yield/Junk Bonds ETFs).
Tough Contenders in the Space
While there are already about 30 ETFs in the High Yield ETF space, the product may face a tough match-up from these deep rooted funds in the category: iShares iBoxx High Yield Corporate Bond Fund (HYG), State Street SPDR Barclays Capital High Yield Bond ETF (JNK) and PowerShares Senior Loan Portfolio (BKLN).
Given this, it may be difficult for these new BulletShares funds to accumulate assets in light of this competition. However, many other BulletShares funds have seen solid inflows, so there is definitely some hope for these new products as well.
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