This year has been a very challenging one for bond investors, with compressed rates pressuring income potential, and monetary policy casting a shadow on long-dated debt.
In turn, most have turned to short-term bond funds. Many investors have replaced interest-rate risk for credit risk with the idea that the only fixed-income funds delivering significant returns are high-yield products
Below, we list the top three best-performing fixed-income ETFs in a list that excludes leverage and inverse strategies, which tend to skew the data. After all, it’d be hard to compare any bond fund’s performance with a triple-inverse bet against long-dated Treasurys, such as the PowerShares DB 3X Short 25+ Year Treasury Bond ETF (SBND), which is up 41.6 percent this year.
3. The iShares Global ex USD High Yield Corporate Bond ETF (HYXU | C) is up 9.22 percent year-to-date.
HYXU tracks an index comprising ex-U.S. dollar, high-yield bonds from developed markets, offering exposure to nondollar-denominated high-yield debt.
The fund focuses heavily on bonds tied to the industrial and consumer goods sectors. While it taps into several countries, most of the fund is invested in securities denominated in euros. That makes it largely a bet on high-yield debt issued by firms in the eurozone, and one that’s sensitive to fluctuations in the euro, according to IndexUniverse ETF Analytics.
HYXU is mostly a midterm debt fund with a weighted-average maturity of 4.76 years in a mix that has a yield to maturity of 5.3 percent.
2. The AdvisorShares Peritus High Yield ETF (HYLD | D-54) is up 11.67 percent.
HYLD’s performance this year is testament that sometimes paying for active management—in this case, $125 per $10,000 invested in expense ratio—works.
Launched in November 2010, HYLD is an actively managed fund tracking high-yield debt in the U.S. aimed at delivering high current income. The fund has $458 million in total assets.
There’s no question that high yield is all about credit risk, and HYLD favors lower-rated debt, tying 33 percent to B-rated credits, 10.18 percent to CCC+ and 1.14 percent to CCC. The portfolio has delivered total returns of 11.6 percent so far this year, making it the second-best-performing fixed-income ETF of 2013. Nearly 90 percent of the 70-bond portfolio is tied to the industrial sector.
What’s more, at a time when yield is hard to come by, HYLD is delivering a yield-to-maturity of 9.46 percent in a portfolio with weighted average maturity of 5.3 years.
1. The SPDR Barclays Convertible Securities ETF (CWB) is up 19.44 percent year-to-date.
CWB tracks a market-cap-weighted index of U.S. convertible securities, such as convertible bonds—bonds that can be converted into a company’s equities at some point. Think of it as a bond with a built-in stock option that can be converted.
These hybrid securities typically offer a lower coupon than similar nonconvertible bonds in exchange for the flexibility they provide. Indeed, CWB isn’t necessarily for investors looking for outsized yields. The fund, which is heavily allocated to the technology and consumer staples sectors, is currently shelling out a dividend yield of about 2.8 percent.
Boasting $1.66 billion in total assets, the fund is highly liquid, and comes with a 0.40 percent expense ratio a year ($40 per $10,000 invested).
Charts courtesy of StockCharts.com