(Updates with Lipper data on high-yield bond fund outflows)
By Ashley Lau
Aug 7 Investors looking to bet on the credit of
issuers in the high-yield bond market can do so now with the
launch of two exchange-traded funds, the first of their kind,
backed by credit default swaps.
The ETFs, which began trading on Thursday on the BATS
exchange, provide exposure to the credit of North American
high-yield debt issuers. They launch at a time when high-yield
junk bonds have been falling out of favor, with investors in
U.S.-based funds pulling $7.1 billion out of high-yield bond
funds in the week ended Aug. 6, their biggest outflows on
record, according to data from Thomson Reuters' Lipper service.
For investors in the high-yield bond market, the new ETFs -
the ProShares CDS North American HY Credit ETF and the
ProShares CDS Short North American HY Credit ETF -
could offer a way to manage credit risk, said Dave Nadig, chief
investment officer of ETF.com, a research and analytics firm
based in San Francisco.
"The credit default swaps market exists as a way of
offsetting risk for high-yield bond investors," he said.
The TYTE ETF, which provides long exposure to the credit of
high-yield issuers based in North America, could be used by an
investor who is expecting economic conditions to improve and
spreads to tighten, said Steve Sachs, head of capital markets at
Proshare Advisors LLC.
The WYDE ETF, on the other hand, which provides short
exposure to the credit of North American issuers, could be used
by someone who sees economic conditions deteriorating with
credit spreads widening, he said.
"The idea is to give pure exposure to simply the credit
aspect of the fixed-income market, effectively removing all
interest-rate risk and being really only long or short the
actual credit component of the fixed-income market," Sachs said
in an interview.
With these two new listings, ProShares, a provider of
alternative exchange-traded funds, now has a total of seven ETF
listings on the exchange run by BATS Global Markets, the
second-largest U.S. exchange operator by volume.
Nadig said the ETFs will likely be used by a more narrow,
specific audience of institutional investors, rather than a
broader retail crowd.
"If you're somebody who is making lots of investments around
the credit spectrum, these can be great little tactical tools
for fine-tuning your exposures," Nadig said. "It's a great tool
for folks looking for this kind of hedging exposure."
(Reporting by Ashley Lau in New York; Additional reporting by
Neha Dimri in Bangalore; Editing by Leslie Adler and Andre