Invesco PowerShares Capital Management LLC, the Wheaton, Illinois-based sponsor of quantitative rules-based exchange traded-funds, has launched a short-term, high-yield/junk global bond ETF in an effort to bring more variety in the short-term yield-focused fixed-income world that’s currently dominated by a handful of successful ETFs.
Since longer maturity bonds are generally more sensitive to interest rate movements, these securities came under severe selling pressure recently as investors got ready for higher interest rates and tapering of QE by the US Federal Reserve. This is the reason securities from short-end of the yield curve held up a lot better despite recent volatility in the fixed-income market. Hence, if you wish to stay invested in the fixed-income market, you should concentrate on this segment for better yields.
The PowerShares Global Short Term high Yield Bond Portfolio (PGHY) tracks the Deutsche Bank Global Short Maturity High Yield Bond Index, using a ‘sampling methodology’ and holding about 30 bonds in its portfolio, all denominated in US dollars. The index targets below-investment grade (junk/high-yield) short-term bonds across the world, including the US.
Eligible bonds include either short-term bonds (bonds with three years or less until maturity when issued) or long-term seasoned bonds (bonds with more than three years to mature at issuance, but currently have three years or less until maturity).
Also, an eligible short-term bond must have a minimum amount outstanding of $100 million (excluding Eurodollar bonds), while a long-term seasoned bond should have a minimum amount outstanding of $250 million (excluding Eurodollar bonds). Short-term Eurodollar bonds should have more than $200 million outstanding while long-term seasoned Eurodollar bonds must have more than $350 million outstanding. Most of the top 10 holdings are from Europe, although no single firm makes up more than 6 percent of assets to avoid “concentration risk”.
PGHY has an effective duration of only 1.7 years, which indicates the fund has a relatively low interest rate-risk. Yield to maturity is calculated at 4.8 percent, making it a decent choice from a payout perspective. The fund has a composite rating from Deutsche Bank of no greater than “BB+”, but no less than “C,” according to prospectus.
The fund has an annual expense ratio of 0.35 percent.
Disclosure: No holdings