Xtrackers USD High Yield Corporate Bond UCITS ETF

Issuer: Xtrackers

Asset Class: Fixed Income

TER: 20bps

Trading Currency: USD

Pays Income: False

Listing Date: 21 Sep 2022

Ticker: XUHA

ISIN: IE00BDR5HN05

This investment product provides targeted exposure to the U.S. dollar-denominated high-yield corporate bond market. It seeks to track an index composed of fixed-rate, taxable, non-investment grade corporate bonds issued by U.S. and international corporations. By focusing on securities with credit ratings below investment grade, often termed 'junk bonds', the portfolio holds debt with a higher risk of default compared to their investment-grade counterparts. The fund aims to mirror the performance of its underlying benchmark, offering investors a diversified basket of these higher-yielding instruments, which can be challenging and costly for individuals to assemble and manage. The physical replication approach ensures that the fund holds the actual bonds that make up the index, providing direct exposure to the asset class.

The primary attraction for investors is the potential for significantly higher income streams compared to safer government bonds or investment-grade corporate debt, which is especially compelling in periods of low prevailing interest rates. Beyond the enhanced yield, high-yield bonds often have a performance profile that correlates with the equity markets, as the creditworthiness of the issuing companies is closely linked to broader economic conditions. This characteristic means the fund can act as a portfolio diversifier and a potential source of capital growth during economic expansions when corporate profitability is strong and default rates typically decline.

However, the pursuit of higher yields inherently involves greater risk. The foremost concern is credit risk—the chance that an issuer may fail to make timely interest payments or repay the principal upon maturity. During economic recessions or market downturns, the probability of defaults across the high-yield space can increase substantially, potentially leading to a sharp decline in the fund's value. The fund is also exposed to interest rate risk; a rise in general interest rates would likely decrease the market value of the existing, lower-coupon bonds in the portfolio. Investors should carefully assess their own risk tolerance before investing.