Global X USD Corporate Bond ETF (Currency Hedged) (ASX: USIG) provides exposure to investment grade, USD-denominated corporate bonds to offer investors a tool to generate yield from a fixed-income asset class.
USIG provides exposure to investment grade, USD denominated corporate bonds to offer investors a tool to generate yield from a fixed income asset class. USIG seeks to deliver investment results that correspond generally to the price and yield performance, before fees and expenses, of the Bloomberg USD Liquid Investment Grade Corporate Hedged to AUD Index by investing in the Xtrackers USD Corporate Bond UCITS ETF 1D (the Underlying Fund), which is managed by DWS Group (DWS). DWS is a leading global asset manager with over €821 billion in assets under management as of December 2022.221
1 (DWS, 2023) https://www.dws.com/en-gb/our-profile/facts-and-figures/
1 (SIFMA Research, 2023) https://www.sifma.org/resources/research/us-corporate-bonds-statistics/
Issuing bonds, or in other words debt, is one way companies raise capital to fund their business activity. To help investors, these corporate bonds are then assessed by credit rating agencies – Fitch Ratings, Moody’s and Standard & Poor’s (S&P) – to determine their quality (how likely the company is to pay back the debt with interest). Investment grade bonds are the highest quality corporate bonds and must meet at least a BBB rating from S&P and Fitch or Baa3 from Moody’s. Historically, investment grade bonds are higher risk and yielding than US Government bonds. On the flip side, investment grade bonds are considered less risky and offer more reliable returns than sub-investment grade bonds, also called high yield bonds.
1 SIFMA Research, 2023
USIG is passively managed and seeks to match the performance of its benchmark, the Bloomberg USD Liquid Investment Grade Corporate Hedged to AUD Index, which invests in:
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The issuer of units in Global X USD Corporate Bond ETF (Currency Hedged) (ARSN: 661 604 431) is the responsible entity of the Fund, being Global X Management (AUS) Limited (AFSL 466778) (“Global X”). The product disclosure statement (PDS) for the Fund contains all of the details of the offer of units in the Fund. Copies of the PDS are available from Global X Management (AUS) Limited or at globalxetfs.com.au. In respect of each retail product, Global X has prepared a target market determination (TMD) which describes the type of customers who the relevant retail product is likely to be appropriate for. The TMD also specifies distribution conditions and restrictions that will help ensure the relevant product is likely to reach customers in the target market. Each TMD is available at globalxetfs.com.au. The information provided in this document is general in nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information in this document, you should consider the appropriateness of the information having regard to your objectives, financial situation or needs and consider seeking independent financial, legal, tax and other relevant advice having regard to your particular circumstances. Any investment decision should only be made after obtaining and considering the relevant PDS and TMD. Investments in any product issued by Global X are subject to investment risk, including possible delays in repayment and loss of income and principal invested. None of Global X, the group of companies which Mirae Asset Global Investments Co., Ltd is the parent, or their respective directors, employees or agents guarantees the performance of any products issued by Global X or the repayment of capital or any particular rate of return therefrom. The value or return of an investment will fluctuate and an investor may lose some or all of their investment. All fees and costs are inclusive of GST and net of any applicable input tax credits and reduced input tax credits, and are shown without any other adjustment in relation to any tax deduction available to Global X. Past performance is not a reliable indicator of future performance.
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About Global X ETFs
Global X ETFs is a leading global ETF provider with a growing range of cost-effective and innovation-led products which are built to help investors and their advisers achieve better investment outcomes. While we are distinguished for our Thematic Growth, Income, and International Access ETFs, we also offer Core, Commodity, and Digital Assets funds to suit a wide range of investment objectives. Explore our ETFs, research, and insights, and more at www.globalxetfs.com.au.
Global X is a member of Mirae Asset Financial Group, a global leader in financial services, with more than US$528 billion in assets under management worldwide.¹ Mirae Asset has an extensive global ETF platform ranging across the US, Australia, Brazil, Canada, Colombia, Europe, Hong Kong, India, Japan, Korea, and Vietnam with almost $100 billion in assets under management.²
¹ Assets under management as at March 2023, Mirae Asset Global Investments
² Assets under management as at June 2023, Mirae Asset Global Investments
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Investment grade corporate bonds are tradeable debt securities issued by companies with stronger credit ratings, as judged by rating agencies. Investment grade corporate bonds typically have ratings of Baa3/BBB-/BBB- or Baa1/BBB+/BBB+ using the middle rating of Moody’s, S&P and Fitch.
They are often thought to come with fewer risks, but lower potential income, than high-yield (or “junk”) bonds.
USIG is passively managed. It tracks an index of investment grade corporate bonds managed by Bloomberg, the American financial data and media company.
To qualify for index inclusion, bonds must meet the following criteria:
The index rebalances monthly.
Due to the size of the bond market, it is often impractical or impossible for index-tracking bond funds like USIG to buy every bond in their index. For this reason, index-tracking bond funds commonly take a selection or “sample” of bonds from their indices—in a method known as “sampling replication”. Bonds will be chosen in order to replicate the index as closely as possible, based on risk and return characteristics.
One of the attractions of bonds as an asset class is that they provide capital stability and steady income. Yet when investors buy unhedged bonds denominated in foreign currencies, currency fluctuations mean there is a greater risk of capital loss and income erosion. In order to support capital stability and make income payments more consistent, we have chosen to use currency hedging for USIG.
There are several main benefits that come with investing in US dollar investment grade corporate bonds.
The first is reliable income. Under most market conditions, investment grade corporate bonds pay more income than US government bonds. And pay income more reliably than dividend-paying shares. This can make them useful to retirees.
The second is that investment grade corporate bonds can generate this income while taking on less risk. Most are issued by companies with strong credit ratings. Examples include Amazon, Microsoft, JP Morgan and Boeing. This means they are less likely to default and investors’ capital is more secure.
They also offer diversification. US dollar corporate bonds have low correlations with shares and properties – the two asset classes most important to Australians. This means that adding them to a diversified portfolio can lower overall volatility.
They are also more liquid, trading in larger volumes and on smaller spreads. This makes assembling bond portfolios cheaper and ensures that exiting a position can be done in a more orderly manner.
There is also the potential for capital growth. While most investors use bonds for income, there is nevertheless potential for bond prices to increase under favourable market conditions or if interest rates fall.
USIG is issued and managed by Global X but gains its exposure to the underlying investment grade corporate bonds via an ETF issued and managed by DWS. USIG buys and sells units in the London-listed Xtrackers USD Corporate Bond UCITS ETF 1D (Ticker: XDGU) and manages this exposure to ensure the fund tracks the index as closely as possible. XDGU tracks the same index of investment grade corporate bonds but is not hedged to Australian dollars. Global X separately manages the currency hedging.
Three major risks to investment grade corporate bond ETFs include credit risk, liquidity risk and interest rate risk. These three risks by no means exhaust the full set of risks faced by the fund. (For more detail, please read the product disclosure statement). To summarise each:
Credit risk: The fund could suffer if a company whose debts it holds defaults, has its credit rating downgraded, or is unable to meet a financial obligation.
Liquidity risk: Bonds included in XDGU have been screened for liquidity. However, there remains a risk that the fund will be unable to sell the bonds it holds for cash. Bond liquidity may also impact the ability of the fund to accurately value its assets, and may cause the fund to trade on secondary market discounts. These risks will be higher in times of elevated volatility.
Interest rate risk: When interest rates rise, the prices of debt securities typically fall. (The vulnerability of debt securities to interest rate rises is commonly measured by a statistic called “duration”). This means that changes in monetary policy by central banks or governments are likely to affect the performance of the fund.
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