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Popular PIMCO Short-Term, High-Yield Bond ETF Gets Euro-Hedge


PIMCO and European provider Source expand on the popular high-yield, short-duration bond strategy with a London-listed, euro-hedged exchange traded fund version.

According to a press release, the PIMCO EUR-hedged Short-Term High Yield Corporate Bond Index Source ETF (STHE.L) began trading on the London Stock Exchange Monday, Oct. 21.

The new fund will provide euro-based investors the same exposure to the USD-denominated PIMCO Short-Term High Yield Corporate Bond Index Source ETF (STHY.L) , while reducing the effects of exchange rate swings between the U.S. dollar and the euro currency. [Another Look at High-Yield Bond ETFs]

STHE has a 0.60% expense ratio, compared to STHY’s 0.55% expense ratio.

STHY’s high-yield, short-duration bond investment has been a popular strategy in Europe, attracting $550 million since its launch in March 2012.

“Short term high yield is a segment of the market which continues to resonate with investors, combining low interest rate risk with enhanced yields,” Howard Chan, ETF product manager at PIMCO, EMEA, said in the press release.  ”Since launch, we believe that this ETF has delivered both a high level of yield and lower volatility compared to other products in the broad high yield sector.”

Investors have become increasingly concerned about a rising rate environment in the U.S., with benchmark yields on 10-year Treasuries jumping 100 basis points over the summer. As a way to diminish the negative effects of rising rates on fixed-income assets, investors sought out shorter duration bond funds.

Across the pond, the U.S.-listed PIMCO 0-5 Year High Yield Corporate Bond Index ETF (HYS) , which launched in June of 2011, has about $3.3 billion in assets under management, of which $2.4 billion was added this year alone, according to IndexUniverse data. HYS has a 0.55% expense ratio and a 3.43% 30-day SEC yield.

The three PIMCO funds are based on the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index. [High-Yield Bond ETFs: Interest Rate Risk vs. Credit Risk]

For more information on new product launches, visit our new ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.