With investors focused in on the Fed and the prospect of
higher rates, there has been a huge sell-off in fixed income
securities. This has especially been the case in the long end of
the curve, as these securities are generally pretty sensitive to
interest rate movements.
For this reason, many investors who want to stay in the bond
space are concentrating their efforts in the short-end of the
curve. Securities in this segment have held up a lot better in
this recent bout of volatility, and have seen a big surge in
interest from a variety of investors lately.
Unfortunately though, low duration bonds usually offer up
little in terms of yield, especially when you are talking
about Treasury securities. That is why a look to high yield
bonds in this corner of the market could be an ideal strategy at
this time (read
Time to Buy Floating Rate ETFs?
While there are a couple ways to do this, investors who are
seeking global exposure to this market have few options at their
disposal. However, with a recent launch by PowerShares of their
Global Short Term High Yield Bond Portfolio trading under the
ticker of PGHY, investors may have a fresh way to efficiently
target the space.
PGHY in Focus
The new fund will target the DB Global Short Maturity High
Yield Bond Index, holding roughly 30 bonds in its portfolio. The
focus of the ETF will be on non-investment grade, short-term
bonds from around the globe, including in the U.S. market.
For this exposure, the fund will charge investors 35 basis
points a year, putting it in the middle of the road in terms of
fees. Volume and assets look to be a little light on the product
to start though, so total costs may be somewhat elevated in the
near term (read
3 Actively Managed Bond ETFs for Stability and
Still, the ETF does look to offer pretty well diversified
exposure to a number of companies across the globe, focusing on
securities that have a 'BB' rating from S&P, while 'B' rated
securities make up about 24% as well. Top individual holdings
include a number of companies from Europe, although it should be
noted that no single firm makes up more than 6% of the
In terms of risks, the effective duration comes in at just 1.7
years for this ETF, putting it decidedly in the low end of the
spectrum. Yet despite this, the ETF has a yield to maturity of
about 4.8%, making it a decent choice from a payout look.
The global high yield market is pretty sparse in terms of
competitors, with only a handful of funds even coming close.
Arguably the biggest competitor looks to be the
iShares Global High Corporate Bond ETF (
This product charges investors 40 basis points a year, and has
a big basket of close to 550 companies. The fund also has a
decent yield of about 4.9%, though it has an effective duration
of about four years (see
3 Oversold Bond ETFs to Buy on the Rebound
Still, the ETF hasn't really been a smashing success, as just
under $65 million is invested in the fund. This could either mean
that the strategy isn't appreciated, or that investors do not
really have a need for securities in this corner of the
Given the global market conditions and how many are reacting
to yield-oriented investments at this time though, we could begin
to see a surge in interest for low duration securities that still
have a bit of yield. So I wouldn't write off funds like GHYG or
the newly-launched PGHY just yet, as the demand for these
products could certainly come if market conditions remain
unfavorable to interest rate sensitive bonds, pushing more into
the short-end of the curve for safety.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
ISHARS-GL HYCB (GHYG): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report