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PowerShares’ Short-Dated Junk ETF Launches

Olly Ludwig

Invesco PowerShares today launched a short-term, high-yield global bond ETF that it first put into registration about three months ago, bringing competition and a bit more variety to a portion of the yield-focused investment world that’s currently inhabited by two successful funds.

The PowerShares Global Short Term High Yield Bond Portfolio (PGHY) will have an annual expense ratio of 0.35 percent, or $35 per $10,000 invested. That’s 5 basis points cheaper than the SPDR Barclays Capital Short Term High Yield Bond ETF (SJNK), a U.S.-focused high-yield fund. That’s also cheaper than the oldest fund in the space, the PIMCO 0-5 Year High Yield Corporate Bond ETF (HYS), which costs 0.55 percent a year and has been around for almost two years.

The new PowerShares high-yield fund will cast a wider net than SJNK, owning both public- and private-dollar-denominated bonds that re below investment grade and global in scope. The debt has “a composite rating” from DB of no greater than BB+, but no less than C, according to the fund prospectus. Holdings are no more than three years from maturity.

PGHY will serve up access to a relatively safe, short-dated 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 fund comes at a 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—and on a relatively high-yielding note—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 SJNK and HYS, two securities that target high-yield U.S. corporate credits ranging from very-short-dated bills to five-year notes, though, again, PGHY is globally focused.

SJNK, which has gathered upward of $1.5 billion since its rollout a bit more than a year ago, while HYS, the oldest fund in the space, has accumulated $2.15 billion since its rollout two years ago.


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