3 High Yield Bond ETFs to Watch on Fed Tapering


The fixed income world remained depressed this year with global sell-off over the past couple of months. Investors have been continuously shifting their exposure to the equity world based on improving U.S. economic conditions, Euro zone’s escape from recession and stabilizing Chinese economy (read: Bond ETFs Experience Massive Outflows).
Further, the chance of Fed curtailing its monetary easing policies anytime soon is rising. A pullback in such stimulus should raise the interest rates from their rock-bottom levels, thereby hurting the bonds prices.
Yields on 10-year Treasury bonds soared to nearly 3% earlier this month from a low of around 1.6% in May. In such a backdrop, yield-hungry investors could view high-yield bonds as good sources to maximize current income in the form of interest, especially compared to other choices that have low yields attached to them (read: Forget BOND, Focus on These Junk Bond ETFs Instead).
Additionally, since these bonds are less sensitive to interest rate fluctuations, these provide a cushion to investors against the rising interest rates environment. Further, yields in this sector offer a significant yield premium over the more highly rated Treasury bonds.
Hence, investors seeking to play on the fixed income space may find it difficult to ignore this opportunity to tap meaty dividends. For these investors, we have highlighted three bond ETFs that could continue to offer higher yields even if the Fed tapers and equities continue to rise.
These funds could provide investors with income potential and relatively stable returns while maintaining low correlated assets, and thus could be high quality picks, at least in the short term (see: all the High Yield Bond ETFs here):
Peritus High Yield ETF (HYLD)
This fund is actively managed and seeks to provide capital appreciation in addition to high yields. It offers the best value and least credit risk to investors in the high yield space by investing in corporates with a lower effective duration of roughly 3.52 years. In terms of credit quality, HYLD focuses on low-investment grade bonds (B+ and lower) and holds about 69 securities.
The product is extremely spread out across each sector and security, as no single bond or sector accounts for more than 1.77% and 13% of assets, respectively. The ETF has amassed $325.4 million in its asset base so far and trades in moderate volume (read: HYLD: Crushing the High Yield ETF Competition).
Though HYLD is a bit pricey charging 1.35% in expenses, it has proven itself a winner compared to other bond choices, gaining 7.23% year-to-date. Further, the ETF pays out a high annual dividend yield of about 7.97% per annum while the 30-day SEC yield is greater at 8.31%.
iShares B-Ca Rated Corporate Bond Fund (QLTC)
This product follows the Barclays U.S. Corporate B - Ca Capped Index, holding 212 securities in the basket. It targets the medium term corporate bonds with average maturity of 4.93 years and effective duration of 3.98 years. 
With AUM of $10.2 million, the product puts more focus on the industrial sector with 87% share but does not invest more than 1.84% in single bonds. The fund charges 55 bps in fees per year while volume is light. The ETF sports attractive yield of 7.12% annually, and it has a 30-day SEC yield of 6.11%. Further, the fund added 1.16% this year.
Market Vectors Fallen Angel ETF (ANGL)
This innovative fund uses sampling strategy to track the performance of the BofA Merrill Lynch US Fallen Angel High Yield Index and focuses on ‘fallen angel’ bonds. Fallen angel bonds are high yield securities that were once investment grade but have fallen from grace and are now trading as junk bonds.
This unique approach gives the portfolio 82 securities that are widely spread across them with financial as a top sector. The fund has a modified duration of 5.28 years and year to maturity of 9.57 years. Additionally, the product mainly comprises BB and B rated corporates, which together make up for 85% of the asset base.
The ETF trades in paltry volumes and charges a relatively low fee of 40 bps per year from investors. It has accumulated just $15.70 million in AUM and added 1.35% so far this year. It yields 6.28% per annum, while it has a 30-day SEC yield of 5.24% (read: QE Tapering Could Make These Bond ETFs Winners).
Bottom Line
Investing in high yield bond ETFs is a risky choice due to its higher default rates when compared to the safe haven Treasury counterparts amid huge market volatility and tension in the Middle East. As such, we currently have a negative long term view on all the three products as HYLD and QLTC have a Zacks Rank of 5 or ‘Strong Sell’ rating and ANGL has a Rank of 4 or ‘Sell’ rating (see more in the Zacks ETF Center).
However, the appeal for these funds would probably increase in the coming months should the Fed taper and interest rates rise. Further, more investors would flock into these funds as higher yields help to compensate for the added risks as the global economy, including China and Europe, is showing improvement. This suggests that if current trends hold, the ETFs outlined above might be decent short term choices for those seeking high yield plays in this environment.  
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Read the analyst report on HYLDRead the analyst report on QLTCRead the analyst report on ANGLZacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report


View Comments (0)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • 1 Tip To Lose Belly Fat

    It's Hollywood's Hottest Diet And Gets Rid Of Stubborn Fat Areas Like Nothing Else.

  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • As Fed takes baby steps, Cramer's trick for profit

    In turn, Cramer says making money in the market, involves looking at the environment through the lens of the Fed. "The trick is to remember that they speak for the common person," Cramer said. "The Fed wants the common person to make money." With that backdrop always in mind, Cramer says it becomes…

  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • Tired of Living Paycheck to Paycheck?

    New website reveals how to save $1,000's when you're living paycheck to paycheck. See exactly how.

    AdChoices Media ForceSponsored
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Best Womens Wrinkle Creams 2014

    Mom reveals simple wrinkle solution that has researchers very excited. Try this free solution today to look and feel years younger.

  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Romney-Sized IRAs Scrutinized as Government Studies Taxes

    The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. Senate Finance Committee Chairman Ron Wyden said many of these "massive" accounts come from deals…

  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • 6 Things Debt Collectors Wish You Knew

    The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate…

  • Masters in Accounting or Forensic Accounting

    Study online in your spare time and graduate in less than two years. Accredited program from New England College School of Accounting.

    AdChoicesNew England CollegeSponsored
  • The Government Keeps Helping People Buy Failing Cold Stone Creamerys

    Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers…