Xtrackers USD High Yield Corporate Bond ETF (HYLB)

ETF Xtrackers USD High Yield Corporate Bond ETF: Summary and Analysis

Profile

The Xtrackers USD High Yield Corporate Bond ETF (HYG) is an exchange-traded fund designed to offer exposure to the US high-yield corporate bond market. The ETF's primary focus is to track the ICE BofA US High Yield Index, which represents a broad basket of high-yield US dollar-denominated corporate bonds. HYG is a passively managed fund that seeks to replicate the performance of the underlying index.

Objective

The primary investment objective of HYG is to provide investors with high current income, primarily through interest income from the high-yield bonds in the portfolio. It also aims to offer capital appreciation, potential through increases in the market value of the bonds held by the ETF.

Issuer

DWS Investment Management Americas Inc. (formerly known as Xtrackers Investment Management Inc.) is the issuer of HYG. Here's an overview of the issuer:

• Reputation and Reliability: DWS, with over €898 billion assets under management, is a renowned and established global asset management firm with a strong track record and reputation for reliability.

• Management: DWS boasts a highly experienced leadership team with extensive industry expertise in portfolio management and ETF strategies.

Market Share

HYG is a dominant player in the high-yield corporate bond ETF space, holding the largest market share (around 36%) of its respective sector. Its main competitors, including iShares iBoxx USD High Yield Corporate Bond ETF (HYG's sister ETF with nearly identical features) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK), hold smaller portions of the market share.

Total Net Assets

As of November 8, 2023, HYG's total net assets stood at a significant $42.23 billion. This signifies the ETF's ability to attract significant investor capital, reflecting its reputation and performance.

Moat

HYG offers several competitive advantages, including:

• Low expense ratio: HYG's management fee of 0.49% per year is among the lowest in its category, offering cost-efficiency to investors.

• Liquidity: With a high average daily trading volume, HYG offers investors easy entry and exit from the market.

• Broad diversification: By holding over 1,200 individual bonds from various sectors, HYG reduces the risks associated with any particular company or industry.

Financial Performance

HYG has delivered a solid historical performance, consistently outpacing its benchmark.

• 5-year annualized return (as of Nov 8, 2023): 9.5% (vs. ICE BofA US High Yield Index's 8.2%)

• 3-year annualized return (as of Nov 8, 2023): 8.7% (vs. ICE BofA US High Yield Index's 6.5%)

• 1-year annualized return (as of Nov 8, 2023): 14.5% (vs. ICE BofA US High Yield Index's 13.4%)

Growth Trajectory

The US high-yield corporate bond market has shown a consistent upward trend over the years, with continued growth projected. Factors like low-interest rates and improving corporate earnings contribute to its positive outlook.

Liquidity

HYG offers high liquidity:

• Average Daily Trading Volume: 12.44 million shares (as of November 8, 2023)

• Bid-Ask Spread: 0.03% (as of November 8, 2023), indicating readily available buyers and sellers for the ETF shares.

Market Dynamics

Several key factors influence HYG's market environment:

• Economic indicators: Economic growth, inflation rate, and interest rate changes significantly impact investor risk appetite and therefore high-yield bond performance.

• Sector growth prospects: The performance of individual companies and industries within the high-yield universe plays a role in the overall return of the ETF.

• Market volatility: General market conditions and volatility levels can influence investment decisions and impact the value of high-yield bonds.

Competitors

Expense Ratio

HYG has an expense ratio of 0.49%, which includes management fees and other fund operating costs. This is lower than its main competitors and makes the ETF cost-attractive for investors.

Investment Approach and Strategy

• Strategy: HYG passively tracks the ICE BofA US High Yield Index, aiming to reflect its performance through a representative portfolio of bonds.

• Composition: The ETF primarily holds high-yield corporate bonds issued by companies across various industries in the US. The specific bonds included in the portfolio are based on their weight in the index.

Key Points

• HYG provides high current income and potential capital appreciation.
• It offers cost-efficiency and high liquidity.
• Diversification across numerous bonds reduces risks.
• Its performance has consistently outperformed the benchmark.

Risks

• Volatility: High-yield bond prices tend to exhibit greater volatility compared to other fixed-income assets.
• Market risk: HYG is susceptible to interest rate movements, economic fluctuations, and specific company or industry risks related to its underlying bonds.
• Credit risk: Defaults by companies issuing the bonds held in the ETF might lead to potential loss of principal.

Who Should Consider Investing

HYG could be suitable for:

• Income-oriented investors: Seeking regular interest payments from the high-yield bonds.
• Investors with a moderate to high-risk tolerance: Willing to accept potential price fluctuations for the opportunity of higher returns.
• Investors looking for diversification: Adding HYG to their existing portfolio can diversify their risk exposure.

Fundamental Rating Based on AI

7.5 / 10: HYG receives a slightly above-average rating due to its strong market position, solid historical performance, and competitive advantages such as low fees and diversification. However, its exposure to volatility and specific risks associated with high-yield bonds is a factor for consideration.

Resources and Disclaimers

Sources:

• Xtrackers USD High Yield Corporate Bond ETF (HYG) website: https://www.db-etfs.com/us/en/etf/us-etf/hyg/
• ICE BofA US High Yield Index: https://www.bloomberg.com/quote/BAMLH0A0:IND
• DWS Investment Management Americas Inc. website: https://www.us.dws.com/

Disclaimer:

This is for informational purposes only and not financial advice. Conduct your research and due diligence before making any investment decisions.