This is my final article in my series of three articles where I will be looking for ETFs, which have significantly outperformed the market, and have outperformed competing ETFs but still have low assets. To get my list of "unknown ETFs" I used the Fidelity ETF screener to find ETFs that met my goals of outperformance, but also key criteria like bid/ask spread, and how long the ETF has been trading.
Leverage/Inverse: Exclude Leveraged & Inverse
ETF Type: ETF
Asset Class: Fixed Income
Net Assets: < $80 Million
Price Performance YTD: >-1.12% [AGG Performance YTD -1.12%]
Volume 30 Day average: Between 5K and 40K
Average monthly bid/ask spread: <= 0.50%
Inception Date: Before 4/28/2013 [Have at least 6-month history]
Using the criteria above I found five ETFs in my final screen, which are shown in the table below.
Unknown ETF: iShares Global ex-USD High Yield Corporate Bond ETF (HYXU)
Inception Date: 4/3/2012
Assets: $44.60 million
What makes fund Unique?
When looking at HYXU I found that it is a well-diversified portfolio of international high yield bonds, which are only denominated in Euros, British Pounds, and Canadian Dollars. Unlike other international or global high yield bond ETFs, HYXU does not own bonds that are denominated in US dollars, therefore if the US dollar weakens that will in turn enhance the returns of HYXU, but the opposite could occur if the US dollar strengthens.
The table below shows a comparison of the currency exposure of HYXU compared to competing international and global high yield ETFs that include Market Vectors International High Yield Bond ETF (IHY), and iShares Global High Yield Corporate Bond ETF (GHYG). The data clearly shows that HYXU is heavily weighted towards the Euro, where as GHYG is heavily weighted towards the US dollar, and IHY, is close to a 50/50 split between US dollar, and non US dollar currency exposure.
In addition, what else makes HYXU unique is its effective duration. Effective duration measures how much a bond, or portfolio of bonds will move with a change in interest rates. The table below shows that HYXU has the lowest dividend yield and it also has lowest effective duration as well. Therefore, with that said, taking into account the yield and interest rate risk, HYXU slightly provides the best risk profile.
30-day SEC Yield
The international high yield bond ETF space is new, with all three funds being launched in early 2012, so they do not have that much of a track record yet, but each fund is unique in own way. The reason I chose to compare HYXU to GHYG and IHY is that they hold high yield bonds from developed markets, and in addition, that is why I did not include any emerging market high yield corporate bond funds in my comparison.
The chart below from Yahoo Finance shows a comparison of HYXU to GHYG and IHY since April 9th 2012, which is the inception date for GHYG, and is only 6 days after the inception date for HYXU, and IHY which was April 3rd 2012. The chart shows that for the almost its first year of existence HYXU underperformed its competitors, but in since each fund hit a low in July of 2013, HYXU has significantly outperformed GHYG and IHY.
The chart below shows that the reason for this outperformance has been the weakening of the US dollar, which is represented by the PowerShares DB USD Bull ETF (UUP). As the chart shows, UUP hit a short-term high in July 2013, and has since fallen to the lowest levels since the inception of HYXU. This is why HYXU is at or near an all-time high, and which is why GHYG, and IHY have lagged HYXU.
In closing, I believe HYXU is a good choice to play the international high yield bond space.
With the significant exposure to the Euro, it is a matter of preference and risk tolerance as to which route to choose, HYXU with its low effective duration, and high Euro allocation, GHYG with its large US dollar allocation, or IHY with its high-yield, and 50/50 US dollar/ ex-US dollar currency split. For someone that is looking for a dividend yield that is significantly higher than the current ten-year yield, has a better yield to effective duration risk profile, and it bearish on the US dollar, I believe HYXU is the perfect candidate.