iShares, the San Francisco-based global leader in ETF assets, continues on its torrid product development pace, debuting two more funds in the first week of April, this time targeting the high yield market. These ETF launches come on the heels of 17 releases by the company in February and another 12 in January, suggesting that while the company may have lost a little market share in recent years, it is certainly not losing any more of the space without a fight.
The new funds also look to assist the company in expanding its lineup in the fixed income world. Currently, the company has 44 ETFs in this space including five funds with more than $10 billion in AUM, giving iShares reign over five of the seven largest products in the entire fixed income ETF universe (read Three Bond ETFs For A Fixed Income Bear Market).
These products, the Global ex-USD High Yield Corporate Bond Fund (:HYXU) and the Emerging Markets High Yield Bond Fund (:EMHY), look to help give investors more choices in the international high yield market, where there are currently very few choices. In fact, there are only 11 other choices in the junk space with only the recently launched IHY focusing on the international market (read Van Eck Launches International High Yield Bond ETF).
Beyond these few choices, there are only a couple other plays with heavy international corporate exposure at this time, the biggest of which is the PowerShares International Corporate Bond Portfolio (PICB). This ETF has just under $92 million in AUM but sees relatively light trading volume of less than 38,000 shares in an average session.
However, given the extreme popularity of some of the U.S. centric junk bond ETFs, there could be some considerable interest from those seeking higher yields beyond American shores. For these investors, a closer look at the recently launched products could be in order, both of which we have briefly highlighted below:
Global exUSD High Yield Corporate Bond Fund (:HYXU)
This new ETF looks to track the Markit iBoxx Global Developed Markets ex-US High Yield Index which is a global benchmark of junk corporate bonds in industrialized nations. The bonds in the ETF will be denominated in one of three currencies— Canadian dollar, British pound, or euros—giving investors exposure to holdings outside of American dollars.
The fund charges investors 40 basis points a year and has 100 notes in its basket, trading on the BATS exchange. Euros make up the vast majority of the index’s exposure coming in at 81% of the portfolio while pounds make up another 11% and Canadian dollars round out the rest (read Time To Get Regional With Bond ETFs).
In terms of country exposure, the product has a heavy focus on Western European nations, as Luxembourg, Netherlands, and France take the top three spots. Beyond these top holdings, Germany and Great Britain round out the top five making up just over 10% of the total allocation in the portfolio each.
Like many junk bond products, the duration is pretty low, coming in at 3.8 years for the broad index. However, due to the low credit quality of many bonds in the index, the yield could still be high as the average yield to maturity comes in at 8.1%.
Emerging Markets High Yield Bond Fund (:EMHY)
For investors looking for a concentrated play on high yield bonds in emerging markets, EMHY could be an intriguing choice. The ETF follows the Morningstar Emerging Markets High Yield Bond Index which tracks U.S. dollar-denominated sovereign and corporate fixed income securities from developing nations around the world.
Individual securities must have a minimum outstanding face value of $500 million or more and be fixed rate securities that do not mature within 13 months from now. The index also uses a weight capping methodology, ensuring that single issuers do not make more than 23% of the portfolio and that the sum of all issues over 5% is capped at 48% of the fund.
In terms of country exposure, a number of smaller nations receive high weightings include a 18% allocation to Venezuela, a 14.9% holding in Turkish bonds, and an 11.9% allocation to issuers based in the Philippines. Brazil and Russia make their way into the top ten—combining for about 11% of assets—although this is clearly not a BRIC focused ETF by any means (see more in the Zacks ETF Investing Section).
Thanks to the inclusion of sovereign bonds, this ETF has a slightly higher duration, coming in at 5.9 years. In fact, bonds maturing in at least 20 years make up roughly 13% of the total assets in the just released EMHY.
However, this higher duration—coupled with the risky nature of many of the countries in the fund—may have allowed the product to see higher yields than what many might be expecting. Currently, the ETF’s index sees a yield to maturity of about 7.3%, suggesting it could be an interesting choice for income starved investors who have a desire for more emerging market exposure.
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Read the analyst report on EMHY
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Read the analyst report on IHY
Read the analyst report on HYXU, EMHY, PICB, IHY