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US HY credit market remains attractive

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ETF Securities Fixed Income Research - US HY credit market remains attractive US HY credit market (Ex- Energy, Mining and Metals sectors) remains attractive

ETF Securities Fixed Income Research – US HY credit market remains attractive

US HY credit market (Ex- Energy, Mining and Metals sectors) remains attractive

Summary

  • US High Yield Ex-commodities issuers’ fundamentals are less compromised than what the market implies
  • In our opinion, HY Ex-commodities offers one of the best risk adjusted yields in the fixed income universe
  • US HY Commodity-related sector default rates are expected to continue to rise above to 10% in 2016

Lower profits for US corporates but nothing to worry about yet

The combination of external factors such as weak emerging market (EM) growth, a strong US dollar, the collapse in commodities prices and the slight pick-up in wage inflation has eroded corporates profits in the US (-8% over the fourth quarter of 2015), leading to a rise of risk-aversion in the first quarter of 2016. However, fundamentals are less compromised than what the market has priced in.

ETFS1

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Outside of the commodity sector, these factors have had limited impact on US corporate performance. The average free cash flow – representing the cash generated by a company after capital expenditures – for US HY Ex-commodities corporates has been relatively stable during the post crisis period. Over the same period the free cash flow of commodity-related sectors deteriorated sharply with the fall in commodity prices and weaker international demand. More recently the average free cash flow turned less negative likely reflecting the recent stabilisation of the energy prices.

ETFS2

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In our opinion, the bulk of risks remain limited to natural resource issuers, there is little evidence of distress spilling over into the broader market. The average leverage ratio – measured by Net Debt to EBITDA – for US HY Ex-commodities declined to 6.5x, while the same ratio for commodity-related US HY issuers spiked to 7.8x.

Defaults and ratings downgrades in Energy, Mining and Metals sectors

The large spreads in US HY credit since mid-2015 suggests that market participants are worried about the deterioration of fundamentals among US HY creditors, as a result of the rise in default rates. The ratings company Fitch forecasts that the overall US HY credit market default rate will reach 6% this year (up from 4.5%). Although, two-thirds of this increase comes from the rise of default rates in Energy and Mining and Metals sectors, which have increased to 10% and 20%, respectively. They now stand at their highest level since 1999. The default rate of HY Ex-Energy and metals and mining issuers, remains near post-crisis lows at 1.5%, which is below Fitch’s non-recessionary average of 2.2%.

ETFS3

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No refinancing risk in the near term

The widening of spreads at the beginning of 2016 led to a sharp decline in new issue volumes in the HY primary market. Investors are in turn questioning the ability of US HY issuers to refinance their debts in a tightening environment, in particular for commodity-related sectors. However, refinancing risk should not be a problem in the near term, as relatively little HY debt is maturing in 2016: only 4% Ex-Energy HY debt and 3% of Energy HY debt will mature this year. The bulk of outstanding debt will mature in 2020 for Ex-Energy HY issuers (US$271bn) and in 2022 for Energy HY issuers (US$77bn). In addition, the total amount of debt outstanding for the US HY Energy sector – the most at risk – represents only 15.6% of the overall HY credit market.

ETFS4

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Furthermore, any refinancing risk is likely to be mitigated by a gradual rate normalisation from the Fed and higher corporate revenues in the second half of the year. For the past 6 years, the US GDP registered a series of weak first quarter growth for various cyclical or non-recurring reasons (weather, international developments), followed by a rebound in the second quarter, this rebound is likely to benefit high yield.

US HY Ex-Commodity market valuations attractive

Credit valuations continue to look attractive in the current growth environment, in particular for US high yield credit. Since mid-February, US HY bonds are up 7% versus 1% for the S&P 500, suggesting a notable improvement in risk sentiment.

ETFS5

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Looking at yield-to-worst – the lowest potential yield that a bond can offer without the issuer defaulting – the Risk/Reward profile for US HY Energy looks the most favourable. However, the volatility of yields in this sector is also the highest. Besides, the uncertainty as to whether the commodity sector has bottomed-out yet adds to the risk in this market. Thus, we prefer US HY Ex-Commodities credit market, which offers the second best risk adjusted yield in the fixed income universe.

ETFS6

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Conclusion

US HY Ex-commodities issuers’ fundamentals are less compromised than what the market implies. With default rates at post-crisis lows, we believe the fears over a recession in the US are overdone. In our opinion, this market segment offers one of the best risk adjusted yields in the fixed income universe.

Important Information

General

This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”).

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De mest populära ETFerna hos Nordnet just nu

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För att hjälpa dig att hitta spännande ETFer har Nordnet tagit fram en inspirationssida. Där kan du se vilka ETFer som är mest ägda och har bäst utveckling inom olika regioner och branscher. Här är de 10 mest populära ETFerna oavsett bransch och region. De mest populära ETFerna hos Nordnet just nu.

För att hjälpa dig att hitta spännande ETFer har Nordnet tagit fram en inspirationssida. Där kan du se vilka ETFer som är mest ägda och har bäst utveckling inom olika regioner och branscher. Här är de 10 mest populära ETFerna oavsett bransch och region. De mest populära ETFerna hos Nordnet just nu.

NamnAntal ägareKortnamn
iShares Core S&P 500 UCITS ETF USD (Acc)61 089SXR8
iShares Core MSCI World UCITS ETF USD (Acc)55 745EUNL
iShares Core MSCI EM IMI UCITS ETF USD (Acc)32 682IS3N
iShares S&P 500 Information Technology Sector UCITS ETF USD (Acc)31 628QDVE
iShares Global Clean Energy UCITS ETF USD (Dist)22 891IQQH
iShares Automation & Robotics UCITS ETF USD (Acc)15 4592B76
Xtrackers Euro STOXX 50 UCITS ETF 1C14 484XESC
iShares Core S&P 500 UCITS ETF USD (Dist)14 304IUSA
iShares MSCI ACWI UCITS ETF USD (Acc)12 385IUSQ
XACT OMXC25 ESG12 281XACT OMXC25

Så handlar du med ETFer

Det finns i dagsläget fler än 1 600 ETFer på Nordnets plattform och du kan hitta någon i så gott som alla sektorer och regioner. Det svåra är snarare hur du ska hitta rätt, i det omfattande utbudet.

Med Nordnets ETF-sorterare får du hjälp att söka ut ETFer som matchar dina önskemål. Du klickar helt enkelt i vad du söker och får en lista anpassad till detta.

Innan du köper ETFer finns det några saker det är bra att ha koll på, nämligen:

• Vad ETFen ger exponering mot

• Vad den har för förvaltningsavgift

• Vad är det för spread mellan köp och sälj. Detta blir indirekt en kostnad för dig som investerar i ETFen.

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SXRY ETF spårar den italienska aktiemarknaden

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iShares FTSE MIB UCITS ETF (Acc) (SXRY ETF) med ISIN IE00B53L4X51, strävar efter att spåra FTSE MIB-index. FTSE MIB-index spårar de 40 största italienska företagen.

iShares FTSE MIB UCITS ETF (Acc) (SXRY ETF) med ISIN IE00B53L4X51, strävar efter att spåra FTSE MIB-index. FTSE MIB-index spårar de 40 största italienska företagen.

Den börshandlade fondens TER (total cost ratio) uppgår till 0,33 % p.a. ETFen replikerar det underliggande indexets prestanda genom fullständig replikering (köper alla indexbeståndsdelar). Utdelningarna i ETFen ackumuleras och återinvesteras.

iShares FTSE MIB UCITS ETF (Acc) har tillgångar på 211 miljoner GBP under förvaltning. Denna ETF lanserades den 26 januari 2010 och har sin hemvist i Irland.

Varför SXRY?

Exponering mot brett diversifierade italienska företag

Direktinvestering i 40 italienska företag

Exponering för enskilda länder och stora företag med börsvärde

Investeringsmål

Fonden strävar efter att följa resultatet för ett index som består av 40 av de största och mest likvida italienska företagen.

Handla SXRY ETF

iShares FTSE MIB UCITS ETF (Acc) (SXRY ETF) är en europeisk börshandlad fond. Denna fond handlas på flera olika börser, till exempel Deutsche Boerse Xetra och London Stock Exchange.

Det betyder att det går att handla andelar i denna ETF genom de flesta svenska banker och Internetmäklare, till exempel DEGIRONordnet, Aktieinvest och Avanza.

Börsnoteringar

BörsValutaKortnamn
London Stock ExchangeGBXCMB1
gettexEURSXRY
Stuttgart Stock ExchangeEURSXRY
BATS Chi-X EuropeUSDCSMIBx
Bolsa Mexicana de ValoresMXNSXRYN
Borsa ItalianaEURCSMIB
London Stock ExchangeEURCMIB
SIX Swiss ExchangeEURCSMIB
XETRAEURSXRY

Största innehav

KortnamnNamnSektorVikt (%)ISINValuta
UCGUNICREDITFinans11,49IT0005239360EUR
ISPINTESA SANPAOLOFinans11,35IT0000072618EUR
ENELENELUtilities9,88IT0003128367EUR
STLAMSTELLANTIS NVSällanköpsvaror8,70NL00150001Q9EUR
RACEFERRARI NVSällanköpsvaror8,55NL0011585146EUR
ENIENIEnergi6,10IT0003132476EUR
GASSICURAZIONI GENERALIFinans5,86IT0000062072EUR
STMMISTMICROELECTRONICS NVInformationsteknologi4,74NL0000226223EUR
PRYPRYSMIANIndustri2,93IT0004176001EUR
MONCMONCLERSällanköpsvaror2,47

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Notes from our research on recent crypto moves: ideal moment for crypto index investing?

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Recent market movements reinforce the investment case for crypto index investing and we believe that now is the time to build a long crypto exposure via the Nasdaq Crypto Index (NCI) (or to boarden the exposure vs. a single asset Bitcoin ETF position).

Recent market movements reinforce the investment case for crypto index investing and we believe that now is the time to build a long crypto exposure via the Nasdaq Crypto Index (NCI) (or to boarden the exposure vs. a single asset Bitcoin ETF position).

Here are some commentaries from our Research:

• NCI surges +18% last week (Nov 3 to 10) while Bitcoin was up +15%: driven by market optimism following Trump’s election and a 25 bps rate cut by the Federal Reserve

• Bitcoin breaks new highs: Closed the week above $80k for the first time, leading a market rally

• Outperformance across NCI constituents:

o Smart contract platforms led gains:

 Cardano: +72.6%

 Avalanche: +31.4%

 Ethereum: +27.2%

 Solana: +25.4%

o All constituents (except LTC) outperformed Bitcoin’s gains, see below for last week:

• BTC Dominance tested 60% and retraced: Historically, this has either signaled the end of Bitcoin outperformance or the start of a powerful Altseason

• Strong performance outlook: Momentum in NCI’s broad diversification positions it well for potential long-term gains as macro and regulatory conditions improve

Nasdaq Crypto Index – Constituents performance Nov 3 – Nov 10:

Evolution of Bitcoin dominance:

Why consider Nasdaq Crypto Index (NCI) now?

• Diversification beyond Bitcoin: Capture both Bitcoin’s strength and the upside potential of emerging crypto assets in one allocation.

• Positioning for Altseason: NCI provides targeted exposure to key market segments poised to benefit from broader market growth.

• Current allocation:

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