ETF Securities launches pure play US Bond ETF
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ETF Securities has given fixed income investors more options, launching the first pure play exposure to US Treasuries available in Australia. The new funds are ETFS US Treasury Bond (Currency Hedged) ETF (ASX Code: USTB) and ETFS USD High Yield Bond (Currency Hedged) ETF (ASX Code: USHY).
ETF Securities head of product Evan Metcalf said USTB is the first pure play exposure to US Treasuries available to Australian retail investors.
“Fixed income securities play an important role in investment portfolios and their returns generally have a low correlation to equity returns, which provides portfolio diversification,” Metcalf said.
While fixed income and the bond market has had a rough time recently, he said generally over time they have low volatility, providing yield with relatively low risk.
“Investors often compare the yield on government bonds to the higher yield on dividends from equities,” he said.
“What they ignore is that to capture that dividend yield they must invest in an asset class with double-digit annual volatility.”
He said for investors like retirees or SMSFs who are seeking peace of mind, low risk asset classes bonds can provide a good option.
ETFS US Treasury Bond (Currency Hedged) ETF (ASX Code: USTB) tracks the iBoxx $ Treasuries Total Return Index, hedged into Australian dollars. The index is market capitalisation weighted and tracks the performance of bonds issued by the US government.
USTB gains its exposure to the index by investing in DWS Group’s Xtrackers II US Treasuries UCITS ETF. DWS is a leading global fund manager with €850 billion of assets under management.
The market for US government debt is the deepest and most liquid of any type of financial instrument, with more than US$23 trillion of outstanding treasuries. However, despite its scale, Aussie investors have had limited access.
ETFS USD High Yield Bond (Currency Hedged) ETF (ASX Code: USHY) tracks the Solactive USD High Yield Corporates Total Market Index, hedged into Australia dollars.
USHY gains its exposure to the Index by investing in DWS Group’s Xtrackers USD High Yield Corporate Bond ETF.
High yield bonds are tradeable debt securities issued by companies with sub-investment grade credit ratings. Investors who are prepared to accept higher risk can earn higher income than investors in investment grade bonds.
To qualify for inclusion in the Solactive Index, bonds must be issued by companies based in developed market countries with at least US$1 billion outstanding face value.
“Fixed income markets have had mixed results over the past year but long-term the asset has proved its value as a core holding, providing investors with yield at relatively low risk,” Metcalf said.
Currency hedging on both products is designed to keep capital stable and income for foreign sources more reliable.
Bonds tend to favour a lower inflation environment so they’ve had a rough year on the back of rising inflation and interest rate hikes globally but forecasts are that the sell-off is slowing.
It has also been called the correction the bond market has needed with yields on US 10-year treasury bonds at one of their lowest points in history.
The launch of ETF Securities latest products comes after the company announced it had been acquired by global investment manager Mirae Asset Global Investments and Global X ETFs for an undisclosed sum.
ETF Securities head of distribution Kanish Chugh said the company was looking forward to having access to their vast research capabilities and experience.
“We will continue to offer innovative and timely products to the market and this launch marks the start of our new growth strategy, especially in light of Mirae Asset and Global X ETFs acquisition of our business,” he said.
“We will continue to offer solutions for investors to build portfolios across the spectrum, whether it’s defensive, growth, income or alternatives.”