Market Overview

A Look At The New Global Junk Bond ETF (IHY, EMLC, CHLC)


Tuesday marked the debut of the Market Vectors International High Yield Bond ETF (NYSE: IHY), the 46th ETF from Market Vectors, the ETF sponsor run by Van Eck Global. With an expense ratio of 0.4%, the Market Vectors International High Yield Bond ETF tracks the Bank of America Merrill Lynch Global Ex-US Issuers High Yield Constrained Index.

IHY, which could pay a monthly dividend, features issues denominated in Euros, U.S. dollars, Canadian dollars or pound sterling issued in the major domestic or Eurobond markets. As of March 27, the index featured just over 1,000 non-investment grade issues of 546 corporations located in 69 countries, including a 33% allocation to emerging markets bonds, Van Eck said in a statement.

Van Eck said the index yield is 8.3% and if IHY carries the same yield, the new ETF would sport a yield that's more than 100 basis points north of what the SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK). JNK has proven to be wildly popular with investors and currently has almost $12 billion in assets under management.

Since IHY debuted on the same day as the iShares Global ex USD High Yield Corporate Bond Fund (BATS: HYXU) and the iShares Emerging Markets High Yield Bond Fund (BATS: EMHY), the three can lay claim to being the first global junk bond ETFs. HYXU also features high yield corporate bonds denominated in Euros, British pounds sterling and Canadian dollars, but with an expense ratio of 0.55% is more expensive than its Market Vectors rival.

Statistics indicate the timing is good to bring out new global junk bond funds. The international segment of the global high-yield corporate bond market has surge from about 10% in 1997 to 35% last year, according to Van Eck. Over $1.3 trillion in high-yield corporate bonds were issued in 2011, including U.S. issues, Van Eck data show.

Van Eck data also indicate that global high-yield have a historically low correlation to other bond asset classes such as Treasuries and U.S. investment-grade corporates. The data show international junk bonds have the most positive correlations to emerging markets equities and then developed market stocks.

With an average coupon of 7.74%, more than 59% of IHY's issues are rated BB and another 34% are rated B. Just over 6% are rated CCC. The portfolio's average years to maturity is 5.55.

At the sector level, nearly three-quarters of IHY's weight goes to industrials with another almost 21% going to financials. However, the industrials umbrella includes staples, discretionary, automotive, energy and technology names, just to name a few.

Noteworthy is the fact that non-dollar denominated bond ETFs have proven popular with investors in recent years. IHY isn't Van Eck's first dance with a global non-dollar bond fund, either. The Market Vectors EM Local Currency Bond ETF (NYSE: EMLC) isn't even two-years old and has already accumulated more than $624 million in AUM. The Market Vectors Renminbi Bond ETF (NYSE: CHLC) is just six months old and has over $5 million in AUM.

Overall, IHY is the fourth Market Vectors international bond ETF and by the looks of the firm's Web site a fifth could be on the way soon.

Posted-In: Long Ideas News Bonds Short Ideas Specialty ETFs New ETFs Emerging Market ETFs Currency ETFs


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