Solactive has released two new fixed-income benchmarks designed to track the performance of the global US dollar- and euro-denominated high yield bond markets. The Solactive USD High Yield Corporate Index and the Solactive Euro HY Corporate Index track the performance of non-investment grade debt issued by firms in both developed and emerging markets.
As of 20 January 2017, the Solactive USD High Yield Corporate Index is up 21.7% and the Solactive Euro HY Corporate Index is up 11.7%.
High yield bonds are those debt instruments with a credit rating of Ba1/BB+/BB+ or below using the middle rating of Moody’s, S&P, and Fitch, respectively.
The indices may serve as reference standards to compare and evaluate portfolio results, a starting universe on which to build investment strategies or smart-beta indices, or as a basis for investment products such as ETFs.
To be eligible for inclusion in the USD and EUR indices, components must have at least $400m and €150m value outstanding respectively. Each index is calculated as a total return index and will be rebalanced on a monthly schedule.
Both indices have performed well over the past year – as of 20 January 2017, the Solactive USD High Yield Corporate Index is up 21.7% and the Solactive Euro HY Corporate Index is up 11.7%.
Figure 1: Solactive USD High Yield Corporate Index
Source: Solactive.
Figure 2: Solactive Euro HY Corporate Index
Source: Solactive.
Having traditionally focused on providing investment grade indices within its fixed income segment, the new launches represent new territory for the German index engineer who is seeking to enhance its suite beyond the current boutique offering. The firm has stated its strategic goal to expand its product range to include a wider range of broad market indices in the future.
Astrid Ludwig, Head of Indexing at Solactive, commented: “The incorporation of benchmarks into our business model aims at broadening the range of index products offered, thus responding to the needs of a wider customer base looking for aggressive pricing on broad market indices covering the fixed-income asset class. As shown by our previous benchmark launches, Solactive can effectively capitalize on its indexing infrastructure and operations to provide cost-efficient benchmarking solutions.”
Europe-listed ETFs tracking the USD and EUR high yield bond markets include funds from iShares, Deutsche Asset Management and SPDR ETFs.
The iShares $ High Yield Corp Bond UCITS ETF (LON: IHYU) has $3.9bn in assets under management (AUM), tracks the Markit iBoxx USD Liquid High Yield Capped Index, and has a total expense ratio (TER) of 0.50%.
For the euro-denominated market, the db X-trackers EUR High Yield Corporate Bond UCITS ETF (Xetra: XHYG) has €280m in AUM, tracks the Markit iBoxx EUR Liquid High Yield Index, and has a TER of 0.35%.
The SPDR Barclays Euro High Yield Bond UCITS ETF (LON: JNKE) has more assets at €310m in AUM. It tracks the Barclays Capital Liquidity Screened Euro High Yield Bond Index, but is marginally more expensive at a TER of 0.40%.