U.S. Markets closed

3 High-Yield Fixed-Income ETFs to Combat Stock Market Volatility

This article was originally published on ETFTrends.com.

The old adage of "no risk, no reward" is still thrown around as part of investment vernacular, explicitly stating that those who take on a high degree of risk will reap the benefits of their emboldened maneuvers. However, with the volatility investors have experiencing in the markets as of late, they may have no choice, but to take on more risk--starting with more high-yielding assets in their fixed income portfolios.

In the current economic climate, high-yield bonds might be considered a safe haven and for most investors, it’s hard to imagine high-yielding debt to be associated with “safe,” unless the word “not” precedes it, but to fixed-income investors in the know, these bonds have been anything, but junk in a rising rate landscape. As the curtain closes on the bull run and the late market cycle, the natural propensity for fixed-income investors is to shift back to safer government debt, but in today’s rising rate environment, high-yielding bond strategies may be the safer option.

“High yield credit has been the one bright spot in a year of negative fixed income returns, returning 1.65% in 2018 for the Bloomberg Barclays High Yield Index,” noted Winthrop Capital Management president and chief investment officer Greg Hahn’s latest report regarding the state of the fixed income markets. “Spreads in high yield credit hit their tightest levels in 10-years at 312 bps. High Yield returns have been driven by lower grade credit where CCC have experienced a year-to-date total return of 5.27% versus -0.42% for BB bonds.”

Related: U.S. Bond Markets Forge on Despite Headwinds from Rising Rates

Sometimes fear can be a great motivator and according to CNN Money's Fear & Greed Index, there's a lot of it to go around lately with the volatility in the capital markets. The extreme tilt to the left shown below could be the catalyst for more risk-taking.

3 High-Yield Fixed-Income ETFs to Combat Stock Market Volatility 1

"The return of volatility to the U.S. stock market in October serves as a timely reminder that bull markets don’t last forever," wrote Lisa Springer, contributing writer for Kiplinger. "Every investor must rebalance occasionally to shield portfolios from downside risk. But rather than just shifting your allocations in U.S. stocks and bonds, investors may want to go outside the box … and into some high-yield alternative strategies.

As such, here are three high-yielding fixed-income ETFs to consider given today's volatile landscape.

1. SPDR Blmbg BarclaysST HY Bd ETF (SJNK)

SJNK seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays US High Yield 350mn Cash Pay 0-5 Yr 2% Capped Index. SJNK invests its total assets in the securities comprising the index, which is designed to measure the performance of short-term publicly issued U.S. dollar-denominated high yield corporate bonds. The short-term maturities will help hedge some credit risk due to the lesser exposure, but holdings are still less than investment-grade. SJNK has returned 3.75% year-to-date, 4.09% the past year and 6.63% the last three years.

2. iShares 0-5 Year High Yield Corp Bd ETF (SHYG)

SHYG seeks to track the investment results of the Markit iBoxx® USD Liquid High Yield 0-5 Index, which is primarily composed of U.S. dollar-denominated, high yield corporate bonds with remaining maturities of less than five years. Like SJNK, debt maturities are shorter, thereby helping to hedge some credit risk, but issues are still less than investment-grade. Nonetheless, SHYG has managed to return 0.16% year-to-date.

3. iShares iBoxx $ High Yield Corp Bd ETF (HYG)

HYG tracks the investment results of the Markit iBoxx® USD Liquid High Yield Index, which is comprised of high yield U.S. corporate bonds that have less than investment-grade quality. Investors who have been able to forego the credit risk have seen total returns of 6.74% the last three years, 2.46% the past year and 2.50% year-to-date based on Yahoo! Finance performance figures.

For more trends in fixed income, visit the Fixed Income Channel.

SPY - SPDR S&P 500 ETF Quote
Top 34 Gold ETFs