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Available on the London Stock Exchange via the ticker code ‘STHE’, the newly listed share class offers euro-referenced investors the same underlying exposure as the original dollar-based fund while minimizing the effects of exchange rate fluctuations between the dollar and euro.
Managed by Pimco, the fund aims to deliver the return on the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index, an index tracking the performance of short-term US dollar-denominated sub-investment-grade corporate debt issued in the US domestic market with less than five years remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of $100 million.
The fund, which has grown to more than $550 million in assets since its launch in March 2012, offers investors both an appealing current yield (currently 6.31%) and a high yield relative to interest rate risk (3.11% per unit of duration), as of 1 October.
The fund is physically invested in bonds and benefits from Pimco’s “smart” passive index replication approach. This approach uses both quantitative and qualitative screens in an effort to exclude bonds that are deemed illiquid or classified as “red light” credits, while maintaining the fund’s objective of closely tracking the index. Pimco defines red light credits as those issuers whose viability as a going concern is in serious question; these generally represent a relatively small percentage of the high-yield universe.
Howard Chan, ETF product manager at Pimco, EMEA, said: “Short-term high yield is a segment of the market which continues to resonate with investors, combining low interest rate risk with enhanced yields. 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.”
Ted Hood, CEO of Source, added: “Our short-term high yield ETF has clearly struck a chord with yield-seeking investors. However, not everyone wants the USD exposure. In response to strong client demand, we are happy to be launching a EUR-hedged share class and further broadening the appeal of Pimco Source ETFs.”
Management fees are 0.60% pa for the EUR-hedged share class and 0.55% pa for the USD share class. The USD share class is available for trading in USD (ticker STHY) and GBP (ticker SSHY).