Global X launches US corporate bond ETF

Oksana Patron

6 April 2023

Global X ETFs (Global X) has launched the Global X USD Corporate Bond ETF (Currency Hedged) (USIG) in Australia in response to a growing demand for fixed income assets rise.

The new fund, which according to the company will provide investors with access to the world’s largest corporate bond “in a cost-effective, highly liquid and currency hedged vehicle”, will have a management fee of 30 basis points and will track the Bloomberg USD Liquid Investment Grade Corporate Hedged to AUD Index.

The index offers exposure to US investment grade corporate bonds, with bond maturities of at least three years and a minimum amount outstanding of US$750 million per bond and US$2 billion per issuer.

Blair Hannon, head of investment strategy at Global X, said USIG was designed to provide investors with a steady income from US investment grade corporate bonds, which generally delivered higher yields than US Treasurys, but still offered attractive risk-adjusted returns.

“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,” Hannon said.

“Only a month ago, US 12-month treasuries were paying more than 5% for the first time since 2001, yet with the recent market dislocation we’ve seen these rates compress back towards 4.50%. This is where US investment grade bonds can shine because they have a low correlation to equity markets – for instance a 28% correlation to the S&P 500, according to Bloomberg.”

“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.” Hannon said.

The firm said that although the US corporate bond market was the world’s largest, with more than US$1.2 trillion worth of investment grade bonds being issued in 2022 and over US$10 trillion in outstanding debt, Australian investors had limited access to this fixed income asset.

“Hence, the launch of USIG will provide an easily accessible, cost-effective solution for local investors.”