Leaning into the growing demand for fixed income assets, Global X has launched a new exchange traded fund (ETF) that will help Australian investors tap into the US corporate bond market.
The new Global X USD Corporate Bond ETF (Currency Hedged) (USIG) marked the firm’s fourth product launch this year, bringing its total product range to 31 ETFs.
USIG would have a management fee of 30 basis points (bps) and would track the Bloomberg USD Liquid Investment Grade Corporate Hedged to AUD Index, which offered exposure to US investment grade corporate bonds with bond maturities of at least three years and a minimum amount outstanding of US$750 million ($1.1 billion) per bond and US$2 billion per issuer.
Blair Hannon, Global X head of investment strategy, said USIG was designed to provide investors with a steady income from US investment grade corporate bonds, which generally deliver higher yields than US Treasuries, but still offer attractive risk-adjusted returns.
Highlighting the collapse of Silicon Valley Bank, he believed there had been a shift in investor sentiment that affected fixed income markets, especially in the US.
“Only a month ago, US 12-month treasuries were paying more than 5 per cent for the first time since 2001, yet with the recent market dislocation, we’ve seen these rates compress back towards 4.50 per cent,” he said.
“This is where US investment grade bonds can shine because they have a low correlation to equity markets — for instance, a 28 per cent correlation to the S&P 500, according to Bloomberg.
“Additionally, fixed income strategies can act as a ballast in times of distress, such as the market conditions the US and beyond are currently experiencing, as well as diversifying a portfolio’s risk profile and income potential.”
USIG would enable Australian investors to tap into the world’s largest corporate bond market, with over US$1.2 trillion worth of investment grade bonds issued last year.
The popularity of fixed income assets within the ETF industry was also witnessed recently, with BlackRock slashing fees on its iShares bond ETF by five bps to 0.1 per cent.
Additionally, across its products globally, iShares had seen year-to-date net inflows into fixed income as a broad asset class of over US$30 billion ($44 billion), compared to outflows of US$11 billion from its broad equity exposures as of end of March.
Hannon added: “Investment grade bonds strike a balance between risk and reward, offering proportionately higher yields than US treasuries, but lower yield potential than riskier high yield bonds.
“Therefore, to build up your portfolio’s resilience and yield potential, you could consider having multiple US bond ETFs in your investment mix.”
