iShares Euro High Yield Corporate Bond USD Hedged ETF (EUHY) seeks to track European high-yield corporate bonds while hedging currency exposure back to the U.S. dollar. This fixed income ETF targets below-investment-grade bonds (BB+ and lower) issued by European companies, providing income from higher-yielding debt securities.
How It Works
EUHY uses a passively managed approach tracking a market-value-weighted index of European high-yield corporate bonds with currency hedging overlays. The fund holds bonds across various European countries and sectors, typically maintaining 2-6 year average duration. Currency hedging uses forward contracts to neutralize euro-to-dollar exchange rate fluctuations, allowing investors to capture bond returns without foreign exchange risk. Holdings are rebalanced monthly to maintain index alignment.
Key Features
- Currency hedging eliminates euro-dollar exchange rate risk, providing pure European high-yield bond exposure for USD-based investors
- Targets higher yields than investment-grade bonds through below-investment-grade European corporate debt across diverse sectors
- Provides geographic diversification beyond U.S. high-yield markets while maintaining dollar-denominated returns through hedging strategy
Risks
- This ETF can lose value if European companies default on bonds or credit spreads widen, potentially causing 10-20% declines during credit stress periods
- Interest rate increases reduce bond values, with 2-6 year duration meaning roughly 2-6% loss per 1% rate rise across the yield curve
- Economic weakness in Europe can trigger widespread corporate downgrades and defaults, particularly impacting lower-rated high-yield bond issuers in the portfolio
Who Should Own This
Best suited for income-focused investors with medium-to-high risk tolerance seeking 3-5 year holding periods and European credit exposure without currency risk. Appropriate as 5-15% satellite allocation within diversified fixed income portfolios. Works well for investors wanting higher yields than investment-grade bonds while maintaining dollar-based returns.