Global X ETFs (Global X) has launched the Global X USD Corporate Bond ETF (Currency Hedged) (ASX: USIG) in Australia, providing investors with access to the world’s largest corporate bond amid surging credit demand.
This is the fourth product launch for Global X this year and brings its product range to 31 ETFs as it expands its business in Australia.
The fund tracks the Bloomberg USD Liquid Investment Grade Corporate Hedged to AUD Index, offering exposure to US investment grade corporate bonds, with bond maturities of at least three years and a minimum amount outstanding of US$750 million ($1.1 billion) per bond and US$2 billion ($3 billion) per issuer.
Commenting on the launch, Global X head of investment strategy, Blair Hannon, said the purpose of USIG is to offer local investors a consistent source of income from investment grade corporate bonds in the US, which typically provides greater yields than US treasuries while also presenting appealing risk-adjusted returns.
Namely, while the US corporate bond market is the largest globally, Australian investors have had limited access to it. As such, the launch of USIG aims to provide a cost-effective and easily accessible solution for Australian investors.
“There has been a significant sentiment shift in a very short space of time that is heavily impacting fixed income markets, especially those in the US. As we’ve seen the Silicon Valley Bank collapse and persistent interest rate hikes from the Fed, many investors are consequently looking to bonds as a safe haven,” Mr Hannon said.
“Only a month ago, US 12-month treasuries were paying more than 5 per cent for the first time since 2001, yet with the recent market dislocation, we’ve seen these rates compress back towards 4.50 per cent.
“This is where US investment grade bonds can shine because they have a low correlation to equity markets — for instance, a 28 per cent correlation to the S&P 500, according to Bloomberg,” Mr Hannon explained.
Moreover, he added that fixed income strategies can act as a ballast in times of distress — such as the market conditions in the US — as well as diversifying a portfolio’s risk profile and income potential.
Regarding yield, Mr Hannon explained that investment grade bonds strike a “balance” between risk and reward, offering proportionately higher yields than US treasuries, but lower yield potential than riskier high yield bonds.
“Therefore, to build up your portfolio’s resilience and yield potential, you could consider having multiple US bond ETFs in your investment mix,” he concluded.