It has not been particularly good year for high-yield bond exchange traded funds. Things have been even worse for emerging markets debt funds, both the dollar-denominated and local currency varietals.
The combination of the two assets classes, junk and developing world sovereigns, in theory, should not be appealing. However, at a time when investors are still skittish about a possible spike in Treasury yields and are flocking to low duration bond ETFs, one new fund merits additional consideration. [Short Duration Bond ETFs See Inflows Surge]
The Powershares Global Short Term High Yield Bond Portfolio (PGHY) is a combination U.S. and international high-yield bond ETF. Ten countries are represented in the ETF, which debuted in June, but the U.S. commands over 54% of PGHY’s country weight. The U.K. and Luxembourg are PGHY’s other developed market exposures, but represent just 4.4% of the ETF’s geographic weight.
PGHY’s low effective duration of 1.36 years helps the fund cope in a rising rate environment. Duration is a measure of a fund’s sensitivity to interest rate changes, and high durations will have a greater negative impact on an ETF’s performance as interest rates rise. [Fight Rising With This International Short-Term Bond ETF]
The emphasis investors have recently put on low duration is palpable. For example, the Vanguard Short-Term Bond ETF (BSV) has seen year-to-date inflows of $4.77 billion, but BSV yields a piddly 1.25% compared PGHY’s 30-day SEC yield of 3.28%.
PGHY has also outperformed BSV since it came to market. Actually, although PGHY is up just 1.6% since it debuted, the last of bond ETFs it has outperformed over that time is impressive. PGHY has outpaced the major dollar-denominated emerging markets sovereign debt ETFs as well as the largest U.S. junk bond funds.
Since inception, the DB Global Short Maturity High Yield Bond Index, PGHY’s underlying index, has outperformed the Barclays U.S. Aggregate Bond Index by 160 basis points, according to PowerShares data.
PGHY’s credit quality as measured by the Standard & Poor’s scale is as follows: BBB 8%, BB 46%, B 28% and CCC 8%. Eleven percent of the fund’s 130 issues are not rated by S&P.
Powershares Global Short Term High Yield Bond Portfolio