ETF Trends
ETF Trends

By investing in international debt or bonds with shorter durations, bond exchange traded fund investors can diversify away from rising rates in the U.S. Specifically, investors can take a look at a relatively new PowerShares ETF that combines both hedging themes.

The PowerShares Global Short Term High Yield Bond Portfolio (NYSEArca: PGHY) tries to reflect the performance of the DB Global Short Maturity High-Yield Bond Index, which tracks foreign, short-term, non-investment grade debt denominated in U.S. dollars. PGHY has a 0.35% expense ratio and a 3.79% 30-day SEC yield.

Investors are taking a greater interest in international bonds as a way to diversify away from U.S. government debt, especially as the Federal Reserve thinks about shifting away from its accommodative policy. Yields on benchmark 10-year Treasury notes have topped 2.9%, gaining over 100 basis points since May as investors anticipate Fed “tapering” on the monthly bond purchasing plan. [Global Bond ETF Shines Even as U.S. Yields Soar]

The PowerShares PGHY ETF’s top country allocations include the U.S. 45.1%, Russia 12.3%, Ukraine 9.1%, Brazil 5.1%, Venezuela 4.1%, Finland 3.5%, France 3.4%, Turkey 3.3%, Barbados 2.7% and Canada 2.6%.

Moreover, many are still seeking out high-yield, speculative grade debt options as a way to diversify credit exposure. [International High-Yield Bond ETFs for Income]

“Certain sectors of the bond market react differently to rising rates,” according to Morningstar senior fund analyst Cara Esser. “For example, more-credit-sensitive bonds, like high-yield corporates, tend to react less negatively to rising rates than do bonds with more interest-rate risk, such as a U.S. Treasuries.”

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