As income-minded investors become more knowledgeable about the investment space and look to control their risk exposure, some may turn to targeted speculative-grade bond exchange traded fund options to focus on specific segments of the high-yield, junk bond market.
For instance, Deutsche Asset Management has come out with the Xtrackers High Beta High Yield Bond ETF (NYSEArca: HYUP) and Xtrackers Low Beta High Yield Bond ETF (NYSEArca: HYDW) to help investors reduce or increase the risk they are comfortable with in the high-yield segment.
“Higher bonds have focused on the broad market, and what we have done beginning this year is actually take a great effort to dissect that market further to give advisors a better way of managing risk in that space,” Arne Noack, Head of ETPs Development for the Americas at Deutsche Asset Management, said at the Inside ETFs 2018 conference.
HYUP offers investors access to speculative-grade higher beta bonds, while HYDW provides access to lower beta bonds.
Specifically, the Xtrackers High Beta High Yield Bond ETF tries to reflect the performance of the Solactive USD High Yield Corporates Total Market High Beta Index, which includes the high-yield corporate bond market that exhibits higher overall beta to the broader high yield corporate bond market. Beta is a measure of a security’s sensitivity or volatility and reflects the rate of change in a security’s price that results from overall market moves. Higher yielding securities also tend to exhibit higher beta.
Meanwhile, the Xtrackers Low Beta High Yield Bond ETF tries to reflect the performance of the Solactive USD High Yield Corporates Total Market Low Beta Index, which includes junk-rated debt that exhibits lower overall beta to the broader high-yield bond market. Consequently, the portfolio is comprised of lower-yielding junk bonds that show a lower beta.
“We brought out new products that allow you to dial down the duration with our short duration high yield and we’ve also enabled investors to dial up the risk and dial down the risk with our high yield high beta and high-yield low beta offerings,” Luke Oliver, Managing Director and Head of ETF Capital Markets for the Americas at Deutsche Asset Management, said.
The two ETFs combined would mirror the portfolio of the broader Xtrackers USD High Yield Corporate Bond ETF (HYLB).
Furthermore, for those more concerned about interest rate risk, the Xtrackers Short Duration High Yield Bond ETF (NYSEArca: SHYL) goes down the yield curve to cover speculative-grade debt with shorter durations or lower sensitivities to changes in interest rates.
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