Invesco PowerShares has broadened its range of short-term high yield ETFs with the launch of a Europe-focussed version of its existing USD1.2 billion product.
With interest rates and yields at such low levels, the new ETF is likely to appeal to investors who are seeking higher income than they can get from government or investment grade corporate bonds.
The new PIMCO Euro Short-Term High Yield Corporate Bond Index Source UCITS ETF will invest in a portfolio of high yield securities with maturities of up to five years, issued by companies in developed European markets. Bonds with shorter maturities should be less sensitive to changes in interest rates than those at the longer end.
“The European corporate segment looks in good shape,” says Paul Syms, head of fixed income product management at Invesco PowerShares (EMEA). “Company balance sheets are strong and on average they have plenty of cash to meet debt obligations. PIMCO’s expectation is for expected defaults to remain low relative to historical averages over the cyclical horizon.”
PIMCO have chosen an index that is built to give the ETF the same benefits as the US short-term high yield ETF, the firm says. The sector of bonds up to five years has historically provided better risk-adjusted returns than the broader high yield market. The index will have an issuer cap of 2 per cent, which is lower than most of its peers and is designed to provide a more diversified portfolio. Emerging market issuers will also be excluded from the index, with the aim of providing better downside protection.
The portfolio will be managed by PIMCO, which has more than 40 years of fixed income experience. Ryan Blute, EMEA head of Global Wealth Management at PIMCO says: “Investors in Europe continue to look for sources of yield amidst continued low interest rates. The European High Yield market has grown significantly over the last 10 years and we are pleased to work with Invesco PowerShares to offer clients an ETF dedicated to this sector and as a complement to our existing US high yield ETF.”
The ETF will be available in EUR on XETRA with both income and accumulation share classes. It has an ongoing charge of 0.50 per cent per annum, which is discounted to 0.44 per cent p.a. until 30th June 2018.