With investors focused in on the Fed and the prospect of higher rates, there has been a huge sell-off in fixed income securities. This has especially been the case in the long end of the curve, as these securities are generally pretty sensitive to interest rate movements.
For this reason, many investors who want to stay in the bond space are concentrating their efforts in the short-end of the curve. Securities in this segment have held up a lot better in this recent bout of volatility, and have seen a big surge in interest from a variety of investors lately.
Unfortunately though, low duration bonds usually offer up little in terms of yield, especially when you are talking about Treasury securities. That is why a look to high yield bonds in this corner of the market could be an ideal strategy at this time (read Time to Buy Floating Rate ETFs?).
While there are a couple ways to do this, investors who are seeking global exposure to this market have few options at their disposal. However, with a recent launch by PowerShares of their Global Short Term High Yield Bond Portfolio trading under the ticker of PGHY, investors may have a fresh way to efficiently target the space.
PGHY in Focus
The new fund will target the DB Global Short Maturity High Yield Bond Index, holding roughly 30 bonds in its portfolio. The focus of the ETF will be on non-investment grade, short-term bonds from around the globe, including in the U.S. market.
For this exposure, the fund will charge investors 35 basis points a year, putting it in the middle of the road in terms of fees. Volume and assets look to be a little light on the product to start though, so total costs may be somewhat elevated in the near term (read 3 Actively Managed Bond ETFs for Stability and Income).
Still, the ETF does look to offer pretty well diversified exposure to a number of companies across the globe, focusing on securities that have a ‘BB’ rating from S&P, while ‘B’ rated securities make up about 24% as well. Top individual holdings include a number of companies from Europe, although it should be noted that no single firm makes up more than 6% of the assets.
In terms of risks, the effective duration comes in at just 1.7 years for this ETF, putting it decidedly in the low end of the spectrum. Yet despite this, the ETF has a yield to maturity of about 4.8%, making it a decent choice from a payout look.
The global high yield market is pretty sparse in terms of competitors, with only a handful of funds even coming close. Arguably the biggest competitor looks to be the iShares Global High Corporate Bond ETF (GHYG).
This product charges investors 40 basis points a year, and has a big basket of close to 550 companies. The fund also has a decent yield of about 4.9%, though it has an effective duration of about four years (see 3 Oversold Bond ETFs to Buy on the Rebound).
Still, the ETF hasn’t really been a smashing success, as just under $65 million is invested in the fund. This could either mean that the strategy isn’t appreciated, or that investors do not really have a need for securities in this corner of the market.
Given the global market conditions and how many are reacting to yield-oriented investments at this time though, we could begin to see a surge in interest for low duration securities that still have a bit of yield. So I wouldn’t write off funds like GHYG or the newly-launched PGHY just yet, as the demand for these products could certainly come if market conditions remain unfavorable to interest rate sensitive bonds, pushing more into the short-end of the curve for safety.
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