New Global Junk Bond ETF Debuts
March 13th, 2014 at 9:00am by Tom Lydon
State Street’s (NYSE: STT) State Street Global Advisors, the second-largest U.S. ETF issuer, is adding to its stable of high-yield bond exchange traded funds today with the introduction of the SPDR Barclays International High Yield Bond ETF (NYSEArca: IJNK).
The SPDR Barclays International High Yield Bond ETF will the Barclays Global ex-US Issuers High Yield Corporate Bond Index, a measure of ex-U.S. high yield fixed corporate income markets.
The securities in the index must have a minimum $350 million market capitalization outstanding in local currency terms and at least one year remaining to maturity. Additionally, securities must be rated high yield (Ba1/BB+/BB+ or below) using the middle rating of Moody’s Investors Service, Standard & Poor’s and Fitch, according to a statement issued by State Street.
IJNK excludes convertible bonds, floating rate notes, warrants, linked bonds and structured products. As of February 28, 2014, the index was comprised of 716 securities from 46 countries outside the U.S., according to the statement. IJNK carries an annual expense ratio of 0.4%.
While the U.S. remains dominant issuer of high-yield corporate bonds, foreign issuers are increasing their presence. For example Europe’s junk bond issuance more than doubled to over $76 billion last year. In 1997, international junk bonds accounted for less than 11% of the global high-yield corporate bond market, but that number jumped to 44% in 2012, according to Bank of America Merrill Lynch data.
“Investors are unsure of how to replace the high-grade fixed income assets that were once the foundation of their portfolios,” said James Ross, executive vice president and global head of SPDR Exchange Traded Funds at SSgA, in the statement. “The SPDR Barclays International High Yield Bond ETF provides investors with another opportunity to diversify their high yield exposure.”
SSgA’s other high-yield bond ETFs include the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK), the second-largest U.S. junk bond ETF, and JNK’s lower duration equivalent, the SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK).
The international high-yield bond ETF concept has previously been tested with some success. For example, the Market Vectors International High Yield Bond ETF (NYSEArca: IHY) has $148.2 million in assets under management while the Market Vectors Emerging Markets High Yield Bond ETF (NYSEArca: HYEM) has $212 million in assets. [Rebound in European Junk Bond Market Helps This ETF]
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of JNK.
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