SPDR debuts short-term, high-yield US bond ETF in Europe

Sep 20th, 2013 | By | Category: Fixed Income

SPDR ETFs, the exchange-traded funds (ETF) platform of State Street Global Advisors (SSgA), has rolled out a new bond ETF designed to provide European investors with access to the short-term US high-yield bond market.

SPDR debuts short-term, high-yield US bond ETF in Europe

The newly launched SPDR Barclays 0-5 Year US High Yield Bond UCITS ETF provides exposure to the short-term US high-yield bond market.

The SPDR Barclays 0-5 Year US High Yield Bond UCITS ETF has made its debut on the Deutsche Börse (ticker SYBK) and will be cross-listed on the London Stock Exchange (tickers SJNK and JNKS).

The fund, which is physically replicated and comes with a total expense ratio of 0.40%, is linked to the Barclays 0-5 Year US High Yield Bond Index, a broad-based benchmark that measures the performance of US dollar-denominated high-yield corporate bonds that have a remaining maturity of less than 5 years.

The index is composed of circa 400 corporate bonds with a rating between Ba1/BB+/BB+ and CCC and an outstanding face value of at least $350 million. The index composition is reviewed monthly with a maximum weighting per issuer of 2%.

Eleanor Hope-Bell, head of SPDR ETFs in the UK, commented: “As corporate balance sheets have improved since the global financial crisis, the underlying fundamentals in credit markets remain strong, pushing projected default rates down below the historic average of 4.9%. Fitch projections show that the current default rate for non-investment grade bonds is similar to 2012’s 1.9%, which remains well below the historic average of 4.9%.”

She added: “Low default rates and the threat of rising interest rates make high-yield bonds particularly attractive to investors. Short-term high yield bonds, in particular, offer investors the benefit of higher yields and lower duration, limiting exposure to interest rate risk. Furthermore, investors can achieve greater diversification through an ETF than investing in one issuer’s bonds.”

The launch comes just weeks after the provider launched three short-duration bond ETFs on the London Stock Exchange and Deutsche Börse aimed at investors looking to reduce their exposure to interest-rate risk, and takes the total number of  SPDR ETFs available in Europe to 52.

Globally, SPDR manages in excess of $335 billion in ETF assets spread across more than 180 products. The brand is perhaps best known for its two flagship products, the SPDR S&P 500 ETF (SPY) and SPDR Gold Shares (GLD), which have assets of approximately $152 billion and $40 billion respectively.

The new fund will not be without competition. Its nearest rival is likely to be the Pimco Short-Term High Yield Corporate Bond Index Source ETF (STHY), which is linked to the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index. This fund is listed on the London Stock Exchange and has some $433 million in assets under management.

Investors active in the short-term higher yield space may also be interested in the recently launched db X-trackers II iBoxx Sovereigns Eurozone Yield Plus 1-3 UCITS ETF (XYP1). This first-to-market Deutsche Börse-listed ETF provides exposure to shorter-dated sovereign debt of the Eurozone’s five highest yielding investment-grade countries.

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