This article was originally published on ETFTrends.com.
Rising Treasury yields have sparked an interest in high-yield debt issues as investors may be realizing that the extended bull run in U.S. equities may be losing steam, especially when last week's stock sell-off saw the Dow Jones Industrial Average lose 1,300 points in two consecutive days. However, a risk-on appetite is still prevalent and this hunger for returns can now be satiated in high-yielding bonds.
"Investors pulled money from high yield bond ETFs in the first quarter, but demand has been building since then, and to start the fourth quarter it has accelerated," noted Todd Rosenbluth, director of ETF and mutual fund research at CFRA, in an article.
Here are three of the best-performing high-yield bond ETFs thus far this year.
1. WisdomTree Negative Duration High Yield Bond ETF (HYND)
HYND seeks to track the price and yield performance of the BofA Merrill Lynch 0-5 Year U.S. High Yield Constrained, Negative Seven Duration Index. The index is designed to provide long exposure to the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index while seeking to manage interest rate risk through the use of short positions in U.S. Treasury securities. HYND normally invests at least 80% of its total assets in the component securities of the index and investments that have economic characteristics that are substantially identical to such component securities.
2. WisdomTree Fundamental US S-T High Yield Corporate Bond (SFHY)
SFHY seeks to track the price and yield performance of the WisdomTree Fundamental U.S. Short-term High Yield Corporate Bond Index. Under normal circumstances, at least 80% of the fund's total assets will be invested in component securities of the index and investments that have economic characteristics that are substantially identical to the economic characteristics of such component securities. The index is designed to capture the performance of selected issuers in the short-term U.S. non-investment-grade corporate bond market that are deemed to have favorable fundamental and income characteristics.
3. High Yield ETF (HYLD)
HYLD seeks high current income with a secondary goal of capital appreciation. The sub-advisor seeks to achieve the fund's investment objective by selecting a focused portfolio of high-yield debt securities, which include senior and subordinated corporate debt obligations like loans, bonds, debentures, notes and commercial paper.
HYLD does not have any portfolio maturity limitation and may invest its assets in instruments with short-term, medium-term or long-term maturities. It invests at least 80% of its net assets in high-yield debt securities.
Other High-Yield ETF Options
HYHG tracks the performance of the Citi High Yield (Treasury Rate-Hedged) Index and allocates 80% of its total assets in high-yield bonds and short positions in Treasury Securities in order hedge against rising rates. Because HYHG invests in high-yield bonds, there is credit risk associated with the higher yield since the fund invests in corporate issues that are less than investment-grade, but by targeting a duration of zero, HYHG offers less interest rate sensitivity versus its short-term bond peers.
Related: Top 56 High Yield Bonds
HYZD seeks to track the price and yield performance of the BofA Merrill Lynch 0-5 Year U.S. High Yield Constrained, Zero Duration Index, which provides long exposure to the BofA Merrill Lynch 0-5 Year U.S. High Yield Constrained Index while seeking to manage interest rate risk through the use of short positions in U.S. Treasury securities. The majority of the fund's total assets will be invested in the component securities of the index and investments that have economic characteristics that are similar in nature.
For more trends in fixed income, visit the Fixed Income Channel.
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