More than Meets the Eye in the High Yield Currency Pie

By Matt Tucker, CFA

Over the past few months we have seen a lot of investors looking for ways to add yield to their portfolio, through investments such as high dividend stocks and higher yielding bonds investments. In the fixed income market we have seen significant flows into the iBoxx $ High Yield Corporate Bond Fund (HYG). Through April 17th HYG had gathered $3.3 billion in new assets year to date, more than any other fixed income ETF, according to data from BlackRock and Bloomberg. But most individual investors in the United States are only accessing the portion of the high yield market that is US dollar-denominated. They may be surprised to learn that there’s more to the high yield pie than meets the eye.

In the past 15 years, high yield bond markets have developed throughout Canada, continental Europe and the United Kingdom. In 1997, the high yield market was 98% USD based, today the USD represents only 77% of the market. While the USD high yield market has grown at a 12% annualize rate, the euro, sterling and Canadian high yield markets have increased by 33% annualized over the past 15 years, according to data from Bank of America Merrill Lynch and Markit iBoxx as of December 31.

The introduction of the euro as a single currency for the eurozone has helped fuel the growth of this marketplace. Additionally, high yield companies that have multi-national operations have generally found it beneficial to seek funding for their global businesses in more than one currency.

The charts below show how the global and global ex-USD high yield markets have grown.


















As high yield bond markets have become more global so too have high yield ETFs. The iShares Global High Yield Corporate Bond Fund (GHYG) provides investors with comprehensive global high yield access in one trade. GHYG consists of developed international corporate bonds that are denominated in the US dollars, euros, the pound sterling, and the Canadian dollar.

Investors can now access the ex-USD portion of the high yield bond market using an ETF. The iShares Global ex USD High Yield Corporate Bond Fund (HYXU) offers investors access to high yield bonds denominated in euros, pound sterling and Canadian dollars. Investors can use these tools to express a view on USD versus non-USD high yield. Or they can augment portfolios if they already own USD high yield and need the international component.
This chart offers quick snapshot of currency exposure offered by these three funds:










As you can see, HYG offers 100% US dollar exposure, while GHYG has 77% of its holdings in US dollars. HYXU is heavily weighted toward Europe, with 81% of its holdings in euros.

How can investors consider using these ETFs in a portfolio? Anyone looking for global high yield exposure can simply buy a single fund (GHYG). Or investors can implement tactical views with HYXU, or pair it with HYG for a more comprehensive global high yield developed market. The global high yield bond markets are now within reach of the average investor.


About Matt Tucker, CFA

Matthew Tucker, CFA, Managing Director, is a member of the Product Strategy Team within BlackRock’s Fixed Income Portfolio Management Team. He leads the product strategy effort for exchange – traded funds, and leads the platform’s efforts in North and Latin America iShares. His team focuses on developing new fixed income iShares strategies, partnering with the iShares team on product delivery, and supporting iShares client sales.

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