Deutsche Expands High Yield ETF Suite

Two new funds offer investors a beta exposure choice.

One day after rolling out a short-duration, high-yield debt fund in the Xtrackers Short Duration High Yield Bond ETF (SHYL), Deutsche Asset Management has further expanded its offering in the junk bond space. It has launched the Xtrackers High Beta High Yield Bond ETF (HYUP) and the Xtrackers Low Beta High Yield Bond ETF (HYDW).

Both funds list on the NYSE Arca. HYUP comes with an expense ratio of 0.35%, while HYDW charges 0.25%.

“Ultimately, what we’re achieving with all three new launches—SHYL, HYUP and HYDW—is an expansion of our high-yield product suite to become a very meaningful and useful toolbox for people who allocate to high-yield bonds,” said Arne Noack, Deutsche Asset Management’s head of exchange-traded product development for the US.

“What we’re trying to solve for is a need that we see for people to manage risk within their high-yield allocation,” he added.

Methodology

Essentially, these funds represent two sides of the same coin, dividing up the universe of bonds for the Xtrackers USD High Yield Corporate Bond ETF (HYLB), with beta representing a bond’s volatility level and higher/lower beta generally corresponding with higher/lower yield.

The ETFs focus on the same universe—high-yield corporate debt denominated in U.S. dollars with at least $400 million in face value and issuers with at least $1 billion in face value. Eligible firms must have an original maturity of 15 years or less and a remaining maturity of at least one year, the prospectus said.

The methodology sorts the eligible components in the universe by yield, with those falling above the median included in the index for HYUP and those falling below added to the index for HYDW. The indexes are reconstituted and rebalanced monthly, with caps on individual components, which are weighted by market capitalization, set at 3%.

Noack notes that while HYDW will let investors take some risk off the table, HYUP is offering higher yield, and “it’s a little bit racier from a credit-quality standpoint.”

In general, he notes that HYDW should do better as credit spreads widen, and in an environment of stable or tightening credit spreads, HYUP will likely outperform.

Institutional Involvement

Noack says the funds were developed in consultation with Deutsche’s institutional client base. More tactical investors will be able to use the products to toggle risk on and off, while he also expects a bit of a stable asset base from investors who will use them to recreate HYLB’s exposure and adjust their beta exposure as needed.

Both funds are expected to receive $100 million each in seeding from Deutsche’s clients within their first week of trading, Noack adds.

According to the prospectus, at the end of September, HYUP’s index included 569 bonds from 330 different issuers in 20 different markets. HYDW’s index component list covered 534 bonds and 253 issuers from the same markets.

The addition of these two funds and yesterday’s launch of SHYL bring Deutsche’s fixed-income offering to a total of nine funds; prior to these latest rollouts, it had two other high-yield ETFs, including HYLB.

The issuer has been focused on offering competitively priced fixed-income ETFs, and Noack notes that HYUP and HYDW—like HYLB—are both cheaper than the broadly focused iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Bloomberg Barclays High Yield Bond ETF (JNK), which charge 0.49% and 0.40%, respectively.

Contact Heather Bell at [email protected]