BlackRock Asset Management Canada Ltd. has launched a new fixed income iShares exchange traded fund that will invest in both high-yield and investment grade corporate bonds.
The iShares DEX HYBrid Bond Index Fund (TSX: XHB) began trading on the Toronto Stock Exchange on Tuesday. It is designed to provide investors with regular monthly income by investing in both BBB-rated corporate bonds and the high-yield bond market. XHB will invest exclusively in Canadian-dollar denominated securities.
“XHB is unique in Canada as the only ETF to give investors exposure to the expanding Canadian high-yield marketplace,” said Oliver McMahon, director of product management for iShares ETFs at BlackRock Canada. “Historically, we have had a relatively small high-yield market, with most high-yield issuers looking to raise capital in the U.S. However, over the last 18 months we have seen a number of new high-yield issues within Canada, and the number of issuers is expected to grow as the our marketplace becomes more established.”
McMahon said XHB would meet investor demand for a diversified, high-yielding product, while mitigating risk and delivering regular distributions.
iShares made the decision to launch the new fixed income fund after it conducted research which revealed that investors have become more cautious. In a survey of Canadians with more than $50,000 in the stock market, bonds, or mutual funds, 95% said that preserving their initial investment and minimizing the risk of loss in their portfolio is a priority right now.
At the same time, 89% of the respondents interviewed by The Gandalf Group said that it was also important to maximize the potential for increases in their holdings. And 73% stressed the importance of income generation to their overall investment plan.
“Our research shows that a majority of people today believe it is important to maximize the value of their investments and generate regular income,” said McMahon.
XHB will invest in both high-yield and BBB-rated investment-grade corporate bonds and will track a new index from PC-Bond, a business unit of TSX Inc., the DEX HYBrid Index.
The index will combine the full market capitalization of eligible Canadian high-yield bonds, along with 30% of the market capitalization of the eligible BBB-rated corporate bond market. While the Canadian high-yield market is still nascent and relatively small, its methodology allows the index to maintain a significant yet investible weight in high yield-bonds.
As of Aug. 31, there were 228 bonds included in the DEX HYBrid Bond Index. Of those, 16 were high yield-rated and 212 were BBB-rated bonds. High-yield rated bonds accounted for approximately 18% of the Index.
XHB will carry a management fee of 0.45%.
IE
New ETF to invest in both high-yield, investment grade bonds
iShares targets investors seeking capital preservation and income generation
- By: Megan Harman
- September 28, 2010 September 28, 2010
- 09:56