Thursday 10 January 2013

Portfolio Buy: ETF iShares Markit iBoxx Euro High Yield Bond (LSE:IHYG)

My second European ETF purchase completes this matching pair, complementing the high-yield dividend ETF with a high-yield corporate bond ETF, specifically the iShares Markit iBoxx Euro High Yield Bond ETF.

This continues the theme of equal weighting in my portfolio between equities and bonds.

This ETF aims to closely track the performance of the Markit iBoxx EUR Liquid High Yield Index,  comprising  the largest and most liquid fixed and floating rate sub-investment grade corporate bonds issued by both Eurozone and non-Eurozone issuers. Only euro denominated bonds with a minimum amount outstanding of €250 million are included in the index.

For diversification purposes the weight of each issuer and country in the index is capped at 3% and 20% respectively. All bonds in the index must be rated sub-investment grade according to the methodology used by the index provider. So this is also risky: largest holding (of 306!) - the Banco Espirito Santo of Portugal...

This ETF is priced in Euros on the LSE, which underlines the currency risk that I am adding to what are already risky assets.

The Total Expense Ratio is 0.5% and income is distributed half-yearly.

Now, this is not the best time to be buying corporate bonds, given the on-going 'bubble' in gilts and bonds but the flat yield is still just under 6.3% and the yield to maturity is over 5%. So, not brilliant timing, but not too poor a yield. Whether this yield is adequate for the risk remains to be seen.

Perhaps a little ouzo to calm the nerves?

[Purchase price: EUR 111.75]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. How much faith do you place on Morningstar ratings? I note that your ETF choices are: 2 star, 4 star, Not Rated and 2 star respectively. Does this matter in your choices?

    1. I have no idea what those mean, so no! :-)

      I'm just investing in a specific asset sub-class - this one has already risen in value but hopefully still has some mileage. The yield is good and if it rises, I can make some further purchases.