iShares continued its introduction of ETFs targeting high yielding asset classes with the debut of two more funds on the BATS Exchange this week. The Global HighYield Corporate Bond Fund (GHYG) completes a trio of junk bond ETFs to debut this week that target markets outside the U.S., while the Morningstar Multi-Asset Income Index Fund (IYLD) will be an ETF-of-ETFs that targets high yielding asset classes.
Under The Hood: GHYG
GHYG will seek to replicate the Market iBoxx Global Developed Markets High Yield Index, a benchmark that includes bonds rated below investment grade from issuers in developed markets around the world. GHYG will be tilted heavily towards the U.S., which accounts for about 70% of holdings. The next largest country allocations are Luxembourg (7%), the Netherlands (4%), France (4%), and Canada (3%). The remainder of the portfolio includes primarily Western European countries; there is no allocation to developed Asian markets such as Japan and Australia.
The underlying index includes about 600 individual securities and has an effective duration of about four years. The weighted average coupon for the portfolio is a bit north of 8%, while the yield to maturity is approximately 7%. The inclusion of euro-denominated debt from European issuers helps to push up the effective yield relative to junk bond ETFs that focus exclusively on dollar-denominated debt from U.S. issuers. GHYG will include debt denominated in U.S. dollars as well as bonds issued in Euros, British pounds, and Canadian dollars. Dollar-denominated debt will account for about three quarters of the portfolio [see GHYG fact sheet].
Earlier in the week iShares introduced the Emerging Markets High Yield Bond Fund (EMHY) and Global ex USD High Yield Corporate Bond Fund (HYXU), both of which target high yield bonds from international issuers.
GHYG will charge an expense ratio of 0.40%.
Under The Hood: IYLD
IYLD will seek to replicate the Morningstar Multi-Asset High Income Index, a benchmark that includes equity (20%), fixed income (60%), and alternative asset classes (20%) in fixed weightings.
IYLD will be structured as an ETF-of-ETFs, meaning that the underlying holdings will be other exchange-traded products. Unlike the other ETFs that iShares has debuted recently, IYLD won’t focus exclusively on junk bonds, but rather cast a slightly wider net that includes any high yielding asset classes. The underlying index has the potential to include equity funds, bond ETFs, preferred stock, and REITs. Recently, IYLD consisted of the following ETFs:
- iBoxx High Yield Corporate Bond Fund (HYG)
- S&P US Preferred Stock Index Fund (PFF)
- iShares JP Morgan USD Emerging Markets Bond Fund (EMB)
- Barclays 20+ Year Treasury Bond Fund (TLT)
- Dow Jones International Select Dividend Index Fund (IDV)
- Dow Jones Select Dividend Index Fund (DVY)
- 10+ Year Credit Bond Fund (CLY)
- S&P / Citigroup International Treasury Bond Fund (IGOV)
- S&P Global Infrastructure Index Fund (EMIF)
- FTSE NAREIT Mortgage Plus Capped Index Fund (REM)
The result is a balanced, high yielding portfolio; IYLD offers exposure to thousands of individual securities across a number of different asset classes.
There aren’t many existing ETFs similar to IYLD on the market currently; this fund takes a unique approach to capturing current returns–a popular yet challenging objective in the current environment. Guggenheim offers a Multi-Asset Income ETF (CVY) that seeks to target high yielding securities, but that fund focuses primarily on equity and preferred stock components [see IYLD fact sheet].
IYLD will charge an “all-in” expense ratio of about 60 basis points. That includes the management fee of 0.25% as well as the operating expenses for the underlying ETFs.
Disclosure: No positions at time of writing.