Global X USD High Yield Bond ETF (Currency Hedged)
Invest in bonds that potentially pay higher income.
Global X USD High Yield Bond ETF (Currency Hedged) (ASX: USHY) invests in high-yield-rated corporate bonds in US dollars by companies domiciled in developed countries.
USHY tracks the Solactive USD High Yield Corporates Total Market Hedged to AUD Index. The index is market capitalisation weighted and mirrors the performance of high-yield-rated corporate bonds issued in US dollars by companies domiciled in developed countries. The fund gains its exposure to the index by investing substantially all of its assets in the Xtrackers USD High Yield Corporate Bond ETF, which is managed by DWS Group. DWS is a leading global asset manager with over €902 billion in assets under management as at 31 March 2022.
- High yield bonds can pay higher income than investment grade bonds.
- Bond ETFs can be cheaper and easier to trade than bonds themselves.
- Credit ratings: reflect how likely a borrower is to repay the money that they borrow. The higher a credit rating (AAA is the highest) the more likely a borrower is to repay their debt.
- Ratings agencies: are companies – S&P, Fitch, Moody’s are the main three – that determine companies’ credit ratings.
- Duration: measures the extent to which a bond’s price responds to changes in prevailing interest rates.
- Yield to maturity: measures the yield an investor would receive if all the coupon payments of a bond were received and the bond was held until maturity.
- Currency hedging: is where the price changes between two currencies – such as Australian dollars and US dollars – are mitigated using derivatives.
USHY tracks an index of high-yield US dollar bonds hedged into Australian dollars.
To qualify for index inclusion, bonds must:
- Be issued by companies based in developed market countries.
- Have a composite credit rating of sub-investment grade; be issued by companies with at least US$1bn outstanding face value.
- Have at least US$400mn of outstanding face value and an original maturity date of 1-15 years.
The debts of each company will be capped at 3% of the fund’s weight. The index rebalances monthly. Due to the size of the bond market, it is often impractical or impossible for bond funds like USHY to buy every bond in their index. For this reason, USHY takes a selection or “sample” of bonds from its index—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.
- To receive a potentially higher income, given that non-investment grade bonds trade on higher yields.
- As a way to tactically trade tightening credit spreads.
- To complement existing fixed interest exposure through a segment that is underrepresented in Australia.
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The issuer of units in Global X USD High Yield Bond ETF (Currency Hedged) (USHY) ARSN: 657 949 016 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 www.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 www.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. Past performance is not a reliable indicator of future performance.
The financial instrument is not sponsored, promoted, sold or supported in any other manner by Solactive AG, nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Solactive USD High Yield Corporates Total Market Hedged to AUD Index (the “Index”) and/or Index trademark or the Index price at any time or in any other respect. The Index is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards the Sponsor, Solactive AG has no obligation to point out errors in the Index to third parties including, but not limited to, investors and/ or financial intermediaries of the financial instrument. Neither publication of the Index by Solactive AG, nor the licensing of the Index or Index trademark for the purpose of use in connection with the financial instrument, constitutes a recommendation by Solactive AG to invest capital in said financial instrument nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this financial instrument.
Information current as at 18 August 2022.
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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Sometimes called “sub-investment grade”, high yield bonds are tradeable debt securities issued by companies with sub-investment grade credit ratings, as judged by rating agencies. High-yield bonds typically have ratings of or below “BBB-” by Standard & Poor’s Ratings Services and Fitch, or “Baa3” by Moody’s Investors Services. They are often thought to come with higher risk and higher potential rewards than investment-grade bonds.
USHY is passively managed. It tracks an index of high-yield bonds managed by the German index provider Solactive. To qualify for index inclusion, bonds must meet all of the following criteria:
- They must be issued by companies based in developed market countries, as defined by Solactive.
- Issuers must have a composite credit rating of sub-investment grade, as judged by rating agencies S&P, Fitch and Moody’s.
- Bonds must be issued by companies with at least US$1 billion outstanding face value.
- Bonds must have at least US$400 million of outstanding face value.
- Bonds must have a maturity date of 15 years maximum at the time of issue.
- Bonds must have more than 12 months to maturity (or at least 20 months for bonds new to the index).
Each company’s debt will be capped at 3% of the fund’s weight. The index rebalances monthly.
Due to the size of the bond market, it is often impractical or impossible for index-tracking bond funds like USHY 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 USHY.
When volatility rises, high yield bonds can provide a steady income that smooths portfolio volatility without excessively sacrificing returns. Historically, high yield coupons have been stable in all kinds of markets.
Diversification is an added benefit. Like other kinds of bonds, high yield bonds have a low correlation to equities. This can mean they offer a possible hedge during share market corrections and bear markets.
Access is also a benefit. The corporate bond market is different from the share market in that it is “over the counter”. This means it is made up of banks and brokers trading directly with each other. Much of the high yield bond market is essentially off-limits to smaller investors. USHY, therefore, provides an accessible vehicle to a potentially rewarded asset class that is unavailable to many investors directly.
USHY is issued and managed by Global X but gains its exposure to the underlying high-yield bonds via an ETF issued and managed by DWS. USHY buys and sells units in the US-listed Xtrackers USD High Yield Corporate Bond ETF (Ticker: HYLB), and manages this exposure to ensure the fund tracks the index as closely as possible. HYLB tracks the same index of high-yield bonds but is not hedged to Australian dollars. Global X separately manages the currency hedging.
Three major risks to high yield 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. Credit risk is higher for higher yield bonds because the companies issuing them are of less certain financial health.
Liquidity risk. High yield bonds are less liquid than investment grade bonds. Some rarely trade; others never trade at all. Bonds included in USHY have been screened for liquidity. However, the illiquidity of high yield bonds poses a number of risks to the fund nonetheless. These include an inability to sell the bonds it holds for cash. The inability to accurately value the fund. And the possibility of the fund trading at a discount to its net asset value. These risks will be higher in times of elevated volatility.
Interest rate risk. When interest rates rise, 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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The issuer of this product is identified at the top of this page. The PDS and target market determination for the product are available in the Documents section of this listing. Prospective investors should consider the PDS before deciding to acquire the product. This product listing was vetted by and approved by the product issuer identified above before publishing. Investment Markets (Aust) Pty Ltd AFSL 527875 (IM) is not the issuer of the product.
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