KraneShares Asia High Yield Bond ETF Analysis 10/15/24DISCLOSURE: As of 10/15/24 I have no open position in NYSE: KHYB
KHYB is an asia focused high yield corporate bond fund. The current yield is 15.3% per annum.
Why asia high yield?
1. Higher risk premium for high yield corporate bonds
The asia corporate bond sector has higher yield given similar rated bonds in western markets. In particular the spread for high yield asian corporate bonds is 800 basis points above the risk free rate.
2. Lower default rates and higher coverage ratios
Asia high yield bonds have lower default rates and higher coverage ratios to their US and EU counterparts. This fact alongside the higher risk premium points to a greater reward/risk ratio in the bond market compared to other regions and grade of bonds.
3. Capital appreciation potential
With the defaults of the Chinese real estate developers the asia high yield space took a hit in price and default rates. If you are confident that default rates will return to the historic norm or lower the share price of KHYB could return to the previous highs in the $40/share range.
Why KHYB?
1. Excludes Japanese bonds
Japan is an exception in the asia bond space in that the country has negative real yields. Not to say they should be avoided, but if you are looking for positive yields and not to speculate on rates removing Japan is a prudent choice.
2. Shorter bond duration
KHYB has an average bond duration of 2 years. This is below the asia high yield average of 2.7 year duration. This lowers the price fluctuations as opposed to longer dated bond funds.
3. Below average default rates
Despite the defaults in broader asia credit market throughout 2022, the KraneShares fund did not experience a single default in their portfolio. Of course their portfolio declined in value alongside the market, but this statistic goes to show the responsibility and competence of the managers.
Here is the link to a presentation by KraneShares where I sourced most of this data: engage.kraneshares.com
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