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PowerShares Plans Short-Term Junk ETF

Olly Ludwig

Invesco PowerShares  filed regulatory paperwork to bring to market a short-term global bond exchange-traded fund focused on high-yield credits, its second filing this month detailing a short-dated bond fund after it put one into registration two weeks ago focused on investment-grade debt.

Together the two proposed funds will serve up access to a relatively safe corner of the fixed-income world that offers protection from potentially large losses that holders of longer-dated bonds would face in the event of a downside bond-market correction.

The PowerShares Global Short Term High Yield Bond Portfolio will be based on the DB Global Short Term High Yield Bond Index, a benchmark that will select both U.S. and foreign-dollar-denominated, noninvestment-grade debt from both public and private issuers, the filing said. All holdings must also be no more than three years from maturity.

The two short-dated PowerShares bond funds come at a possibly critical juncture, as bond investors start to look for ways to protect themselves from what a rise in inflation could do to prices of existing bonds. Concentrating holdings on the short end of the yield curve looks to be one of the simplest ways of achieving this objective, even if short-term fixed-income holdings won’t entirely escape the effects of a bond market sell-off.

The proposed junk ETF is roughly comparable to funds such as the SPDR Barclays Capital Short Term High Yield Bond ETF (SJNK), a security that targets high-yield credits ranging from very-short-dated bills to five-year notes. SJNK, which has gathered more than $1 billion since its rollout about a year ago, has an annual expense ratio of 40 basis points, or $40 for each $10,000 invested.

PowerShares didn’t name an expense ratio or a ticker for the PowerShares Global Short Term High Yield Bond Portfolio, but said the fund would have its primary listing on Arca, the New York Stock Exchange’s electronic trading platform.

The other short-dated bond fund the company put into registration earlier this month is the PowerShares Global Select Short Term Bond Portfolio, which will be based on the DB Global Dynamic Short Maturity Bond Index.

The fund will select both public- and private-dollar-denominated bonds that are investment grade—having “a grade of BBB- or higher from Fitch and S'P or of Baa3 or higher from Moody’s,” according to the prospectus. The holdings, as is the case with the proposed junk fund, must be no more than three years from maturity.


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