XTrackers EUR High Yield Corporate Bond UCITS ETF 1D

Issuer: Xtrackers

Asset Class: Fixed Income

TER: 20bps

Trading Currency: EUR

Pays Income: False

Listing Date: 21 Sep 2017

Ticker: XHYG

ISIN: LU1109942653

This investment product provides exposure to the European high-yield corporate bond market. It aims to replicate the performance of an index comprising sub-investment-grade, fixed-rate bonds denominated in Euros, issued by corporate entities. This asset class, often referred to as 'junk bonds,' characteristically offers higher yields compared to investment-grade corporate or sovereign debt, serving as compensation for the increased credit risk assumed by investors. The portfolio is diversified across numerous issuers and industry sectors within the European high-yield sphere, providing broad access to this particular segment of the fixed income market. The fund employs a physical replication strategy, which involves holding the actual bonds that constitute the underlying index.

Incorporating high-yield bonds can be an appealing strategy for investors seeking higher income streams or aiming to boost the overall yield of their fixed-income allocation. The elevated coupon payments can generate a consistent flow of income. Historically, high-yield bonds have exhibited a lower correlation to traditional government bonds and a somewhat higher correlation to equities. This means they can offer diversification benefits but are also more susceptible to economic cycles and shifts in corporate profitability, behaving partly like equities in periods of market stress.

Potential investors should be cognizant of the inherent risks, primarily credit risk—the chance an issuer may default on its debt obligations—and interest rate risk, where bond values decline as interest rates ascend. The fund's performance is intrinsically linked to the economic health of the Eurozone and the financial stability of the underlying corporate issuers. Consequently, this investment is generally more suitable for individuals with a moderate-to-high risk tolerance and a longer-term investment horizon, who are searching for potentially higher income than is available from safer fixed-income alternatives.