Source, a leading European provider of exchange-traded funds (ETFs), has announced that the Pimco Short-Term High Yield Corporate Bond Index Source ETF has been listed in GBP on the London Stock Exchange with the ticker code SSHY.
The new listing complements the existing USD trading line (STHY) and provides GBP-denominated investors with easy access to this Pimco-managed fixed income strategy.
The fund, which is managed by Vineer Bhansali, a portfolio manager and managing director based in Pimco’s Newport Beach, California office, aims to replicate the performance of the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index by physically investing in an optimised basket of securities similar to the constituents of the index.
The optimisation process seeks to maintain the fund’s objective of closely tracking the index while reducing transaction costs and avoiding exposure to illiquid bonds or issuers whose viability as a going concern is in doubt.
Since its inception one year ago, the fund has accumulated asset under management of £190 million, making it one of the best performing new European-listed ETF launches over the past 12 months. The fund has proved popular with investors looking to contain duration risk without sacrificing too much income.
Investors have been attracted to the fund’s strategy, which seeks to achieve the yield, volatility level and low correlations with other asset classes inherent in high-yield space while mitigating interest rate risk by focusing on the shorter end of the yield curve.
The estimated effective yield of the fund’s benchmark index is 5.65% with an effective duration of 2.01 years. This compares to the BofA Merrill Lynch US High Yield Master II Index, a commonly used broad benchmark for US high-yield corporate bonds, which yields 5.87% with a duration of 4.17 years.
Ted Hood, CEO of Source, said: “Investors looking for value added fixed income products offering a competitive yield and lower volatility than broad high yield sector have found SSHY appealing. The volume of assets raised since inception in January 2011 is evidence of its appeal.”
Howard Chan, EMEA ETF portfolio specialist at Pimco, added: “Pimco is delighted with the interest garnered by the Pimco Short-Term High Yield Corporate Bond Index Source ETF. We expect the addition of a GBP trading line for the ETF to further broaden the range of UK investors who can benefit from this blend of high yield corporate bond exposure with reduced duration.”
Commenting on the strategy, Aleem Siddiqui, Head of Alternatives and ETF Strategies at Close Brothers Asset Management, said: “Naturally, we are concerned about duration risk, so SSHY helps reduce the exposure to Treasury yields while staying invested in high yield. It’s refreshing to see ETF providers offering intelligently designed strategies wrapped in a liquid and easy-to-trade instrument.”
Similarly, Alan Miller, Chief Investment Officer of SCM Private, added: “Our strategy within the bond arena has been to maintain yields whilst shortening duration. The SSHY LN is an interesting ETF as it combines a high yield to maturity of 6.8% pa with a short duration of just two years.”
The fund has an annual management fee of 0.55%.
UK and European investors conscious about rising interest rates could also consider the London and Deutsche Börse-listed iShares Barclays Capital Euro Corporate Bond Interest Rate Hedged ETF (IRCP), which offers exposure to euro-denominated corporate bonds combined with an interest rate hedge in the form of a short position in German bund futures, or the London-listed db X-trackers Markit CDX North America High Yield UCITS ETF (XH7Y), which enables investors to assume pure credit risk exposure to predominantly US high-yield corporate bonds, detached from the interest rate component.