The ETF tracks an index of euro-denominated European speculative-grade (high yield) corporate bonds and hedges euro-dollar currency exposure back to the US dollar. It is designed for investors who want access to the interest income of European high yield bonds while reducing exchange rate fluctuations.

It suits investors who want the high interest income of European high yield bonds but prefer to reduce the burden of euro-dollar exchange rate swings.

It is a passively managed (index-tracking) ETF run by iShares (BlackRock).

The fund holds a broad range of euro-denominated European speculative-grade corporate bonds for diversification and regularly distributes the interest income generated by those holdings. At the same time, it applies a currency hedge to reduce the impact of euro-dollar exchange rate movements on returns in dollar terms.

• Currency-hedged exposure to euro high yield bonds
• Monthly distributions aimed at stable cash flow

Assets under management (AUM) stand at $247.9M, and the total expense ratio is 0.35% per year.

Because a currency hedge is applied, the burden of exchange rate fluctuations is relatively small, although hedging costs may be partly reflected in returns.

High yield bond prices move with credit spreads and the interest rate environment, and volatility tends to rise when concerns about an economic slowdown grow. Interest income acts as a partial cushion against price swings.

In a high interest rate environment, the appeal of high yield interest income stands out and can attract inflows, while stronger risk aversion toward credit can lead to outflows.

High interest income and a currency hedge are its strengths, while the credit risk inherent in speculative-grade bonds and hedging costs work as drawbacks.

Among comparable ETFs in the same bond category shown in the table, USHY, HYG and SPHY invest in US dollar high yield corporate bonds, while LQD and USIG are exposed to investment-grade corporate bonds with relatively higher credit quality. What sets this ETF apart is that it adds a currency hedge to European euro-denominated high yield. Investors who want US-focused high yield can look at the ETFs in the table, and those who want global high yield exposure without a currency hedge can also consider a separate product.

Here are the points to review before investing in EUHY. Because it is a high yield bond ETF, it is wise to check its credit risk, interest rate sensitivity and currency hedge structure in advance.

With a high share of speculative-grade bonds, price volatility and default risk can rise during an economic slowdown or credit crunch. While the currency hedge reduces exchange rate risk, the credit and interest rate risks of the underlying bonds remain fully exposed.

This ETF suits investors who want to pursue the high interest income of European high yield bonds while reducing the burden of exchange rates. However, it is advisable to fully understand the credit risk inherent in speculative-grade bonds and to use it as one part of a broader portfolio.