Chinese and Indian Junk

Asian junk bond ESG

Tabula, the London-based bond ETF boutique, has launched the worlds first Asia ex-Japan junk bond ESG ETF. It has partnered with Chinese broker Haitong to help get the product going.

The Tabula Haitong Asia ex-Japan High Yield Corp USD Bond ESG UCITS ETF (TAHY) will hold a portfolio of US dollar debts issued mostly by Chinese, Indian and Hong Kongese companies. Issuers will mostly be in real estate and financial services, and have credit ratings of BBB or BB.

TAHY’s portfolio has a stupendous yield to maturity of 8.9%, which I think is the highest I’ve seen from a bond ETF. Remarkably, the yield doesn’t come from taking much duration risk either. The portfolio’s duration is just 2.87 years.

Tabula’s website doesn’t say what the running yield is (that I could find).

The fund uses an ESG screen to ensure that bonds are not junk-rated due to governance issues like corruption.

TAHY holds 283 bonds from 93 different issuers and charges 0.60%.

Bernie’s commentary – I quite like this

This strikes me as an interesting opportunity. An almost 9% yield (in USD) is virtually unheard of these days. And I completely agree that Chinese bonds are a growth opportunity. However I have some questions:

1. Will liquidity be an issue? As I understand it, Asian bonds can be illiquid. There’s no Tradeweb, MarketAxess or other platform on which Chinese, Indian and Indonesian bonds all trade. Does the high yield therefore partly reflect a liquidity premium?
2. What are default rates like for Chinese and Indian issuers? I must admit I don’t have a clue. 
3. Who is the intended audience for this fund? I’d imagine it’s probably not retail to any degree.
4. Will currency risk be an issue? There is no currency hedge. So if the US dollar rises I’d imagine the yield will fall.

This all being said this is an interesting bond etf that has carved a different path to the more conventional ones.