How could it fit in a portfolio?
Investors looking for an international fixed-income play thanks to the low interest rate environment in regions like Europe and Japan should consider these products. The product has been designed to earn high yield in a rock-bottom interest rate prevailing there.
With the Fed ready to accelerate its QE tapering in the U.S., interest rates will likely rise over the longer term marring the appeal for bond investing in the U.S. market. In such a scenario, being in international bond market looks great at the current level. International high-yield bonds made up 44% of the international junk bond market in 2012, up from 11% in 1997, according to data from BofA Merrill Lynch.
The international junk bond ETF space is not too crowded with only a handful of other products already available in the space. These are Market Vectors International High Yield Bond ETF (IHY), Global ex USD High Yield Corporate Bond Fund (HYXU), Global High Yield Corporate Bond Fund (GHYG) and PowerShares Global Short Term High Yield Bond Portfolio (PGHY).
Among them, HYXU, GHYG and IHY returned about 2.04%, 1.08% and 0.92% (in the year-to-date frame), respectively, versus 1.07% return offered by the largest U.S. junk bond ETF iShares iBoxx $ High Yield Corporate Bond Fund (HYG). Almost in-line or even bigger return awarded by international bond ETF than that of the U.S. ETF should pave the way for asset generation of IJNK.
The newly launched IJNK’s expense ratio and yield are in line with the fees charged by its other international cousins. Thus, on expense and yield fronts, the fund should not face any hurdles for accumulating assets. Macro dynamics are in favor of international junk bond space which should prepare State Street to see another wave of success with this new product, especially if interest in international bond investing picks back up this year.
This article is brought to you courtesy of Eric Dutram.