With the U.S. Fed cutting rates, the fixed income outlook for many U.S. investors may be changing. Yields on cash and somewhat safer offerings may not be able to offer as much upside. That could see investors reassess their overall fixed income portfolios. Should that be the case, Asia high yield could be positioned to stand out, boosted, for one, by improving default rates.
See more: Outlook, Healthy Performance Point to High Yield Asia Bond ETF KHYB
Per data from J.P. Morgan, as of mid-August, Asia’s yield default rates had fallen to their lowest point since 2020. Significantly, that data points to real estate as the standout source of defaults, suggesting that the overall picture is more robust. Furthermore, despite a looming “wall” of high yield securities reaching maturity, a healthy supply pipeline continues to buoy the space.
The Asia high yield ETF KHYB presents one intriguing route into that space. The KraneShares Asia Pacific High Income USD Bond ETF (KHYB) launched back in June 2018. The strategy charges 69 basis points (bps) for its active approach. The Asia high yield ETF looks for high-income-producing debt securities, mostly in high yield. The ETF’s sub-adviser, Nikko Asset Management, uses top-down macro research and bottom-up credit research to assess a given issuer’s credit profile.
Overall, that approach has helped the ETF produce a 7.14% 30-day SEC Yield as of September 17th, per KraneShares data. On an average, annualized basis, KHYB has outperformed its benchmark index over the last year. The ETF has returned 9.9% compared to 7.5% for the Broad-Based Securities Market Index (BBSMI).
Investors have many options to consider in fixed income, but high yield could stand out. Asia high yield, particularly, looks primed to end the year on a positive if data trends continue.
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