The firm says concerns about liquidity have made it difficult for investors to access the European high yield bond market, but its ETF opens the door by providing liquidity and diversity through nearly 100 of the most liquid high-yield corporate bonds.
The ETF does this by tracking the Markit iBoxx Euro Liquid High Yield index. This is a newly created index comprising the most liquid fixed and floating rate sub-investment grade European corporate bonds, with maturities of between 2 years and 10 years and six months.
Each bond will comprise no more than 5 per cent of the index ensure diversification, but currently no bond makes up more than 2 per cent.
Inclusion in the index is based on an average of the ratings allocated to each bond by Fitch, Standard & Poor’s, and Moody’s. Almost two-thirds of the bonds in the index are BB-rated and only 5 per cent are CCC-rated bonds.
Some investors and advisers may be looking at the European high-yield bond market because they are cheaper than investment-grade bonds and yields are looking more attractive than government bonds. This ETF could be useful in providing low cost access but advisers and their clients could be hesitant about investing because ETFs are still relatively new.
Morningstar’s recent ETF Centre survey among 871 individual investors and 150 professional investors, including advisers, found that low costs was the main attraction of ETFs but a lack of information about them was a big hurdle for some.