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Junk Bond ETF Competition Gets Another Contender

ETF Professor

There is always room for more in the world of exchange-traded funds, and now there is a new competitor in the high-yield corporate bond ETF arena. The Deutsche X-trackers USD High Yield Corporate Bond ETF (NYSE: HYLB) debuted on Wednesday.

How To Compete? Charge Low Fees

HYLB faces stiff, entrenched competition from the likes of the iShares iBoxx $ High Yid Corp Bond (ETF) (NYSE: HYG) and the SPDR Barclays Capital High Yield Bnd ETF (NYSE: JNK), the two largest junk bond ETFs in the United States.

Deutsche Asset Management (Deutsche AM), HYLB's issuer, is obviously aware of the intense competition facing any new high-yield corporate bond ETF and the need to catch investors' attention in this hyper-competitive ETF segment. “Obviously” because HYLB charges just 0.25 percent per year in fees.

That equates to $25 on a $10,000 stake, good for the lowest fee of any U.S. high-yield corporate bond ETF. HYG and JNK charge 0.49 percent and 0.4 percent, respectively, per year.

Index, Holdings And Exposures

HYLB tracks the Solactive USD High Yield Corporates Total Market Index and is home to 47 bonds. Over 85 percent are courtesy of U.S. issuers with another 4.3 percent hailing from Canada. The remainder of the new ETF's lineup are European junk bonds. HYLB's top 10 holdings combine for over 31 percent of the ETF's weight.

Debut Timing

The timing of HYLB's debut is curious as some traders have been targeting legacy junk bond ETFs for bearish trades ahead of next week's Federal Reserve meeting, which is expected to produce 2016's first interest rate increase.

As Benzinga reported earlier this week: “‘High yield bonds are by far and away the most in demand from short sellers as the two largest US listed funds that invest in the asset class, the iShares iBoxx $ High Yield Corporate Bond Fund and the Spdr Bloomberg Barclays High Yield Bond ETF make up half the aggregate bond ETF borrow with $2.9 billion and $1.3 billion of these funds now out on loan respectively. The recent volatility hasn’t spurred much additional borrow demand for these funds however as both their value on loan have been relatively flat over the last month,’ added Markit.”

HYLB is the eleventh fixed income fund in Deutsche AM's stable and the third such ETF introduced by the firm this year. Ten of the issuer's bond ETFs have debuted since March 2015.

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