XTrackers USD High Yield Corporate Bond UCITS ETF 1D

Issuer: Xtrackers

Asset Class: Fixed Income

TER: 20bps

Trading Currency: USD

Pays Income: False

Listing Date: 14 Feb 2018

Ticker: XUHY

ISIN: IE00BDR5HM97

This fund provides exposure to the high-yield corporate bond market, often referred to as 'junk bonds'. These are debt securities issued by companies with credit ratings below investment grade, meaning they carry a higher risk of default compared to more highly-rated corporations. To compensate for this increased risk, these bonds typically offer higher yields, presenting an opportunity for enhanced income generation. The investment proposition is centered on capturing this yield premium.

Incorporating high-yield bonds into a diversified portfolio can serve to boost overall income returns, particularly in periods of low interest rates where traditional fixed-income assets offer minimal yields. However, investors should be aware that the performance of these assets is more closely correlated with equity markets than investment-grade debt. This is because the financial stability of the issuing companies is sensitive to the broader economic cycle. During economic downturns, the risk of corporate defaults rises, which can lead to significant price volatility. This fund mitigates some of the individual company risk by holding a diversified basket of hundreds of different bonds.

The strategy focuses specifically on the US dollar-denominated high-yield market, which is the largest and most liquid in the world. By physically replicating a benchmark index of these securities, the fund offers a transparent, cost-effective, and straightforward method for accessing this asset class. It allows investors to gain targeted exposure to a broad range of US corporate issuers from various sectors, aiming to capture the performance of the overall US high-yield segment. This makes it a suitable tool for those looking to add a higher-income, albeit higher-risk, component to their investment holdings.