Xtrackers USD High Yield Corporate Bond ETF is an affordable way to invest in US high-yield corporate bonds. However, difficulties trading these bonds limit its breadth and hamper the advantages of its broad portfolio. 

The fund tracks the Solactive USD High Yield Corporates Total Market Index, which holds the most liquid portion of the US high-yield corporate-bond market. Eligible bonds must have $400 million or more in outstanding face value and at least 20 months remaining until maturity. There’s also an issuer-level minimum outstanding face value threshold. The index excludes certain types of bonds, including convertibles, perpetual bonds, and euro bonds. It weights bonds by their market value, subject to a 3% cap on issuers’ weightings in the index. The resulting portfolio holds a broad and diversified slice of the US high-yield bond market. 

A broad indexing approach leaves much to be desired. The wide return dispersion among the lowest-rated bonds puts it at a disadvantage relative to its Morningstar Category peers. Active managers with more flexibility and sound credit research are in a better position to exploit mispriced bonds that are. Some managers may take on a small stake in bonds rated BBB to cushion the portfolio during credit shocks. 

The index has some shortcomings. It leaves out the less liquid portion of the market to alleviate transaction costs, but this limits its opportunity set. And market-value weighting tilts the fund toward the most indebted issuers.

Xtrackers reduced the annual fee to 0.05% following fee cuts from competitors. Despite landing in the cheapest quintile of its category, the fund has still struggled to consistently outperform the category average.

Analyst Rating

Indexing high-yield bonds is difficult.

Analyst

Lan Anh Tran

Difficulty trading high-yield bonds makes indexing a difficult endeavor in this category. This strategy’s rigidity can be a disadvantage because it omits portions of the opportunity set that its active peers can scour for opportunities. The fund earns a Below Average Process rating.

Below Average

Process

Xtrackers’ strengthening global index portfolio management operation supports a People Pillar upgrade to Above Average from Average.

Most Xtrackers funds are domiciled outside the US, where the team that manages them has made significant strides. Julien Boulliat leads the group, a 20-person outfit spread across London, Frankfurt, and Hong Kong. This group is lean but not overburdened, a testament to its collective expertise and Xtrackers’ investment in top-flight technology. These factors may have contributed to the solid retention rate among senior-level investment professionals.

The US team is not quite as robust as its foreign counterpart. It has weathered more personnel turnover in recent years, and named portfolio managers draw on a smaller supporting cast than larger peers. That said, the team has delivered on its number-one objective of high-fidelity index tracking. Plus, Xtrackers has concentrated on globalizing the team, a focus that only stands to benefit the US organization.

Above Average

People

In the past two years, DWS has been under heavy scrutiny from the SEC and German authorities owing to greenwashing allegations that were initially raised in August 2021 by the firm’s former chief sustainability officer Desiree Fixler. The SEC announced on Sept. 25, 2023, that it has fined DWS USD 19 million for failing to implement procedures to ensure that all investment staff members were following its environmental, social, and governance policies. This relates to funds where ESG factors were analyzed alongside other financially material factors, but where managers retained discretion over ESG outcomes. In addition, the firm was ordered to pay USD 6 million for deficiencies in its anti-money-laundering processes that were uncovered in a separate investigation. The investigation by the German authorities into the firm's ESG disclosures is still ongoing.  
The SEC findings underline that despite strong senior management commitment, it takes a considerable amount of time and resources to embed sustainability across all levels of an organization for firms without a long-standing sustainability heritage. Overconfidence and failure to deal with internal criticism adequately appear to have contributed to DWS' misleading statements on ESG matters. While it's difficult to quantify the financial damage to clients and no misstatements were detected in financial disclosures or prospectuses, we believe the firm’s shortcomings have the potential to adversely affect investor outcomes. Hence, we welcome DWS' efforts to strengthen governance around ESG integration and communicate more conservatively about its ESG capabilities.
Questionable and unsteady leadership has contributed to the DWS' woes. Previous CEO Asoka Woehrmann, who had spearheaded the firm's ESG push, stepped down in June 2022 as a result of the ESG investigations. His credibility had already been harmed following his use of personal email for business purposes and a large payment made to him by a client when he was head of Deutsche Bank's private-client business before being appointed as DWS' CEO in 2018. His successor Stefan Hoops is the firm's sixth CEO in the past 10 years, highlighting the instability in the firm's top leadership. This appointment also shows the continued influence of its parent company, even after the partial IPO in 2018. Hoops has spent most of his career at Deutsche Bank but has no asset-management background.
Despite all these negative headlines and shaky leadership, DWS has managed to remain quite stable in its investment ranks. The firm has also made strides to gain greater independence. For example, since 2020, bonuses have been linked to the firm's own performance rather than to that of the bank as a whole, which supports alignment and talent retention. Variable remuneration takes into account performance of up to five years.
DWS' vast fund lineup covers all asset classes, including passive strategies, which are offered under the Xtrackers brand. Many offerings don't distinguish themselves, but there are genuine areas of strength among active strategies, and fees are competitive across many funds. While the product development process has been streamlined, and although the firm has launched new strategies at a slower pace, lineup turnover remains a concern as a culture of asset-gathering prevails. New offerings are partly related to an expansion of ESG capabilities, but the firm is also building out its thematic equity, multi-asset, alternatives, and exchange-traded fund range. 
At this stage, we continue to believe that DWS' strengths justify a Parent Pillar rating of Average despite several weaknesses in its stewardship practices, but we will closely monitor the company for further disruption.

Average

Parent

Xtrackers USD High Yield Corporate Bond ETF

HYLB tracks an index of USD-denominated high-yield corporate bonds with 1 to 15 years remaining to maturity.

HYLB is one of the cheapest high-yield bond ETFs in the market, with a 0.05% expense ratio. It offers investors an average 5.9% yield, and average total returns. HYLB seems strictly inferior to SPHY, with several disadvantages, but no clear edge.

HYLB: Good, Cheap High-Yield Bond ETF, But Better Choices Out There

iShares iBoxx High Yield Corporate Bond ETF

Bondbloxx USD High Yield Sector Rotation

Schwab High Yield Bond ETF

SPDR Portfolio High Yield Bond ETF

iShares 20+ Year Treasury Bond ETF

iShares Broad USD High Yield Corporate Bond ETF

BondBloxx BB-Rated USD High Yield Corporate Bond ETF

After a year when advisors were relatively cautious about taking on credit risk, sentiment seems to be shifting. In 2023, the most popular fixed income ETF was the iShares 20+ Year Treasury ETF (TLT).

Chart of the Week: High Yield Gaining Traction With Advisors

Fidelity Total Bond ETF

SPDR Bloomberg High Yield Bond ETF

PIMCO Enhanced Short Maturity Active ETF

iShares National Muni Bond ETF

iShares Short Treasury Bond ETF

Vanguard Tax-Exempt Bond Index ETF

BondBloxx CCC-Rated USD High Yield Corporate Bond ETF

We are focusing a lot of attention on fixed income at VettaFi in October. This week, we are hosting webcasts with AllianceBernstein and State Street Global Advisors.

Is Fixed Income ETF Sentiment Shifting?

JPMorgan BetaBuilders Europe ETF

WisdomTree Europe Hedged Equity Fund

iShares Core MSCI Europe ETF

Invesco Fundamental High Yield Corporate Bond ETF

SPDR Portfolio Europe ETF

How important is the cost of an ETF? Well, it depends on who you ask.

Chart of the Week: ETF Fit Matters More Than Cost

The bond market is continuing to rally through the first month of 2023, reinvigorating investor confidence in even the riskiest of debt like high yield bonds. While that market is attractive, investors should still proceed with caution.

High Yield Looks More Attractive, but Investors Should Stay Cautious

While it's been a challenging year for fixed income, falling prices have pushed yields on so-called junk bonds to an average 8.4%, according to the ICE BofA US High Yield Index. That's nearly twice the average yield of 4.35% that high yield bond funds offered at the end of 2021.

Consider HYLB While Junk Bonds Yield Over 8%

The Xtrackers USD High Yield Corporate Bond ETF is a U.S. high yield exchange traded fund. The ETF has a total return performance chart that closely mirrors the one exhibited by the more popular ETF JNK.

Should You Choose High Yield ETFs Over CEFs? HYLB - A Case Study

Amplify Lithium & Battery Technology ETF

Invesco S&P International Developed Low Volatility ETF

Global X Lithium & Battery Tech ETF

T Rowe Price Dividend Growth ETF

iShares Edge MSCI Min Vol USA ETF

Vanguard Dividend Appreciation ETF

Vanguard International High Dividend Yield ETF

Consumer Staples Select Sector SPDR Fund

On a weekly basis, VettaFi has sought to respond to advisor needs in a novel way. We asked questions about their views on the markets, what areas were of greatest interest, and what concerns they had.

Top 5 Insights Advisors Gave VettaFi in 2022

After seeing significant outflows beginning in late 2021, fortune has reversed for the $3.4 billion Xtrackers USD High Yield Corporate Bond ETF (HYLB). HYLB has taken in $51 million in flows in the past week despite the increasing fear among investors of a painful looming recession.

Investors Flock to HYLB as HYG and JNK See Outflows

As investors look for income while avoiding exposure to high volatility, one fund in DWS' lineup of ETFs is continuing to rake in assets.

This High Yield Low Vol ETF Has Taken in Over $500 Million YTD

SPDR Bloomberg 1-3 Month T-Bill ETF

iShares U.S. Treasury Bond ETF

iShares 0-5 Year High Yield Corporate Bond ETF

SPDR Bloomberg Short Term High Yield Bond ETF

To celebrate the 20th anniversary of the first bond ETFs, investors flocked to the asset class, pouring in $28 billion in July, double the amount that flowed into equity ETFs during a strong month for the U.S. stock market. Demand was widespread, with 46 products gathering at least $100 million last month.

High Yield Bond ETFs Return to Favor as Expected

 SPDR Blackstone Senior Loan ETF

Invesco Senior Loan ETF

As big money managers quietly step back into the high-yield debt market following a steep sell-off this year, investors can also begin to take a second look at attractively priced speculative-grade bond exchange traded funds. For instance, BlackRock Inc. and KKR & Co. Inc.

Fixed-Income Investors Should Take Another Look at High-Yield Bond ETFs

Xtrackers MSCI All World ex US High Dividend Yield Equity ETF

Xt EAFE Div Yld Shs

Xtrackers Low Beta High Yield Bond ETF

Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF

Xtrackers High Beta High Yield Bond ETF

Xtrackers Municipal Infrastructure Revenue Bond ETF

Xtrackers Short Duration High Yield Bond ETF

International high dividend exchange traded fund strategies can potentially help investors diversify and generate steady yields. In the recent webcast, Rates Rising?

Global Dividend ETF Strategies Could Help Investors Diversify, Generate Attractive Yields

As headwinds at home grow stiffer, investors are starting to turn to overseas markets to source income. On average, international high-dividend stocks have posted higher yields than U.S.-based ones every year since 1999.

Rates Rising? Time To Go Global With Your High Dividend Strategy

VanEck Fallen Angel High Yield Bond ETF

Investors flocked to fixed income ETFs on June 13 even as the yield on the 10-year Treasury yield spiked above 3.4% on rapid anticipation that the Federal Reserve would more aggressively raise interest rates later that week. Fixed income exchange traded products traded $58 billion last Monday — more than double the 20-day average daily [.

Record Money Traded in Bond ETFs as Fed Sought Rate Hike

iShares Core U.S. Aggregate Bond ETF

iShares Core S&P 500 ETF

iShares iBoxx $ Investment Grade Corporate Bond ETF

Vanguard S&P 500 ETF

Investors are selling out of high-yield bond ETFs in 2022, due in part to the combination of rising interest rates and the geopolitical concerns tied to Russia's invasion of Ukraine shifting risk tolerance levels. In addition, some fear that if earnings from corporate issuers slow due to a weakening global economic environment, their ability to [.

Don't Give Up on High-Yield ETFs

Xtrackers by DWS has launched an ETF providing dynamic risk-controlled exposure to U.S. dollar high-yield corporate bonds. The Xtrackers Risk Managed USD High Yield Strategy ETF (NYSE Arca: HYRM) tracks the Adaptive Wealth Strategies Risk Managed High Yield Index, which uses a daily algorithm to dynamically adjust exposure between bonds and cash equivalent investments.

Xtrackers by DWS Offers Risk-Controlled Exposure to High-Yield Corporate Bonds With HYRM

Invesco BulletShares 2023 High Yield Corporate Bond ETF

iShares Fallen Angels USD Bond ETF

JPMorgan High Yield Research Enhanced ETF

Investors turn to under-the-radar ETF choices in the junk bond space.

Overlooked High Yield ETFs Gain Traction

Apple

AbbVie

Abbott Labs

BlackRock

Disney

Global X SuperDividend US ETF

Amplify CWP Dividend & Option Income ETF

Cohen & Steers Closed-End Opportunity Fund

Corning

Home Depot

iShares International Select Dividend ETF

JPMorgan Chase & Co

Mastercard

Medtronic

Global X MLP ETF

Altria

Microsoft

NIKE

Realty Income Corp

Global X U.S. Preferred ETF

Invesco NASDAQ Next Gen 100 ETF

Invesco Nasdaq 100 ETF

iShares Mortgage Real Estate ETF

Starbucks

My Dividend Growth Portfolio July Update: $500K Across 32 Holdings, 3 Buys, And 2 Sells

Prudential Financial

Schwab US Dividend Equity ETF

The portfolio provided $776 in dividend income during May. However, that amount was 15% lower than a year ago. I added shares to several existing holdings; ABT, DIS, WCLD, VPN, MSFT, AAPL, NKE, and O. I also added QQQM to the portfolio for a growth boost.

My Dividend Growth Portfolio May Update: 35 Holdings And 9 Buys

Cleveland-Cliffs

iShares MBS ETF

Taiwan Semiconductor Manufacturing

Vanguard Mortgage-Backed Securities ETF

Ken Fisher (Trades, Portfolio)'s Fisher Asset Management sold shares of the following stocks during the first quarter of 2021, which ended on March 31.

Fisher Asset Management Trims Several ETF Positions

iShares Morningstar U.S. Equity ETF

iShares Morningstar Growth ETF

iShares Morningstar Value ETF

iShares Morningstar Mid-Cap ETF

iShares Morningstar Mid-Cap Growth ETF

iShares Morningstar Mid-Cap Value ETF

iShares Morningstar Small-Cap ETF

iShares Morningstar Small-Cap Growth ETF

iShares Morningstar Small-Cap Value ETF

Plus, a number of funds made changes to their names and indexes.

ETF Odds & Ends: 9 iShares See Splits

ARK Innovation ETF

SPDR S&P Kensho Clean Power ETF

Global X Autonomous & Electric Vehicles ETF

Global X Telemedicine & Digital Health ETF

Goldman Sachs Equal Weight U.S. Large Cap Equity ETF

Global X Video Games & Esports ETF 

The 3D Printing ETF

SoFi Select 500 ETF

You may not have heard of it, but you may own some of the funds tracking its indexes.

A Lesser-Known ETF Indexer Shines

Direxion Daily Financial Bear 3X Shares

MicroSectors FANG+ Index 2X Leveraged ETN

MicroSectors FANG+ ETN

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN

Direxion Daily S&P 500 High Beta Bull 3X Shares

Direxion Daily Semiconductor Bull 3x Shares

Direxion Daily Technology Bull 3x Shares

Direxion Daily Small Cap Bear 3x Shares

Also, the Select Sector SPDRs had their expense ratios lowered by 1 basis point.

ETF Odds & Ends: FANG+ ETNs Split

ETF Trends CEO Tom Lydon discussed the Xtrackers USD High Yield Corporate Bond ETF (HYLB) on this week's “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show. HYLB offers broad exposure to “junk” bonds — debt issued by borrowers with a higher risk of default.

ETF of the Week: Xtrackers USD High Yield Corporate Bond ETF (HYLB)

News for Xtrackers USD High Yield Corporate Bond ETF ETF (HYLB)