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New High-Yield ETF to Track Global Short-Maturity Bonds


Invesco PowerShares plans to launch a new ETF this week that invests in global high-yield bonds with shorter maturities to protect against the risks of rising interest rates.

PowerShares Global Short Term High Yield Bond Portfolio (PGHY) is expected to list on Thursday, June 20.

“Bonds with shorter maturities generally carry less duration risk than bonds with longer maturities. As such, they may help protect a portfolio against rising interest rates,” PowerShares said in an email Tuesday.

“While high-yield bonds generally carry higher credit risk, they also generally offer higher rates of income. Their higher coupons can also contribute to lower duration,” the ETF manager said.

PGHY will have an expense ratio of 0.35%. The ETF generally will invest at least 80% of its total assets in U.S. and foreign short-term, non-investment grade bonds included in the index, all of which are denominated in U.S. dollars, according to the prospectus.

The new fund may end up competing with iShares Global High Yield Corporate Bond (GHYG) and other ETFs that invest in international speculative-grade debt. [A Global Approach to High-Yield Bond ETFs]

Junk bond ETFs have been popular with investors looking to boost yield in a low-rate environment, but there are worries over the potential impact of rising rates.

For example, some have favored high-yield bond ETFs with shorter durations, or bank loan ETFs that track floating-rate securities. [High-Yield Bond ETFs that Protect Against Rising Interest Rates]

Also, ETF providers have rolled out funds with built-in rate hedges such as ProShares High Yield-Interest Rate Hedged (HYHG), Market Vectors Treasury-Hedged High Yield Bond ETF (THHY) and First Trust High Yield Long/Short ETF (HYLS). [New High-Yield Bond ETF]

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.