Tuesday 6 August 2013

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

A house of cards?
Continuing the theme of topping up my ETF holdings, I have bought some more of this ETF, which specialises in Euro junk corporate bonds. Since I bought before, the price has gone down (at least in Sterling) and the yield has gone up - now touching 6.7%.

But remember the eternal truth: yields are high for a reason - this corner of the investment world is quite evidently risky. I may be investing in the financial equivalent of a house of cards.

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.

But, this is not the best time to be buying corporate bonds, given the slowly deflating 'bubble' in gilts and bonds. What is more, this ETF is priced in Euros on the LSE, which adds a currency risk to what are inherently risky assets.

So, this is a gamble on the continuing strength of the Euro against Sterling plus the general health of the Eurozone financial system. Bit it remains to be seen whether the reward justifies the risk. This is now my biggest ETF holding and ETFs account for nearly 20% of the portfolio.

[Purchase price: Euro 109]

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 comment:

  1. Riskier, yes, but at last count there were 352 holdings in this ETF spread across Europe with a healthy sprinkling of Ger, Lux, Netherlands, UK. So I'd sleep a lot easier than if I had everything in one Co-Op Corp bond!