5 min readBy Ron Koren ETF Insider
How does the XHYD ETF work?
The XHYD ETF is a specialized investment fund that focuses on a specific sector. This exchange-traded fund offers investors exposure to a range of companies in this sector.
The issuer of the XHYD ETF, known as the ICE Diversified US Cash Pay High Yield Consumer Non-Cyclical Index, is committed to providing investors with exposure to below investment grade bonds within the consumer non-cyclicals sector. This rules-based index is designed to include U.S. dollar-denominated bonds from companies in sectors such as consumer goods, discount stores, food & drug retail, restaurants, and utilities. By offering diversification across issuers in this sector, the issuer aims to reduce sensitivity to macroeconomic or systematic changes in the overall economy, making it an appealing option for investors seeking high-yield opportunities while managing risk.
The XHYD ETF, which tracks the ICE Diversified US Cash Pay High Yield Consumer Non-Cyclical Index, offers investors a unique dividend distribution strategy. This ETF focuses on below investment grade bonds in the consumer non-cyclicals sector, including consumer goods, discount stores, food & drug retail, restaurants, and utilities sub-sectors. The dividends are typically influenced by the performance of the underlying bonds, and they occur on a periodic basis. XHYD's eligibility criteria for bonds in its index ensure that they are of lower credit quality, often referred to as junk bonds, and that they are issued by companies deriving a significant portion of their revenue from consumer non-cyclical assets. While the primary goal of XHYD is to track its index, investors may find it appealing for its potential high-yield dividend returns in addition to capital appreciation.
Tracking the ICE Diversified US Cash Pay High Yield Consumer Non-Cyclical Index is the primary objective of the XHYD ETF. This exchange-traded fund seeks to replicate the performance of the index, which consists of U.S. dollar-denominated below investment grade bonds from the consumer non-cyclicals sector. These bonds are issued by companies involved in consumer goods, discount stores, food & drug retail, restaurants, and utilities sub-sectors. XHYD provides investors with exposure to high-yield, non-cyclical bonds while closely following the index's composition and performance, making it an attractive option for those seeking income potential in this specific sector of the bond market.
The correlation aspect of the BNY Mellon U.S. High Yield Beta ETF (XHYD) primarily revolves around its tracking of the ICE Diversified US Cash Pay High Yield Consumer Non-Cyclical Index. As a non-diversified fund, XHYD focuses on U.S. dollar-denominated below investment grade bonds within the consumer non-cyclicals sector, which encompasses various industries like consumer goods, discount stores, food & drug retail, restaurants, and utilities. The correlation of XHYD with this specific index is crucial for investors seeking exposure to high-yield bonds in these sectors, as it offers insights into their performance relative to macroeconomic conditions and the overall economy.
The XHYD ETF focuses on the consumer non-cyclicals sector, which includes companies in consumer goods, discount stores, food & drug retail, restaurants, and utilities sub-sectors. This ETF primarily invests in U.S. dollar-denominated below investment grade bonds issued by companies that derive at least 50% of their revenues or profits from these sectors. The sector concentration in XHYD may provide investors with exposure to industries less closely tied to economic cycles, potentially offering some resilience during economic fluctuations. However, it's essential to note that investing in below investment grade bonds, often referred to as junk bonds, carries a higher level of risk compared to investment-grade securities.
The exposure characteristic of the XHYD ETF (example ETF name for illustration purposes) is centered around the ICE Diversified US Cash Pay High Yield Consumer Non-Cyclical Index. This ETF primarily invests in U.S. dollar-denominated below investment grade bonds issued by companies within the consumer non-cyclicals sector, including consumer goods, discount stores, food & drug retail, restaurants, and utilities sub-sectors. These bonds, commonly referred to as junk bonds, provide exposure to companies that are less sensitive to macroeconomic or systematic changes in the overall economy, offering investors a potentially more stable investment option.
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