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Comparing the Two Largest High-Yield Bond ETFs


High-yield corporate bond ETFs have been a big hit the past few years with investors seeking to boost income amid rock-bottom interest rates.

For example, junk bond ETFs have seen their assets explode to $30 billion in less than six years. [Junk Bond ETFs and Rising Rates]

The iShares iBoxx $ High Yield Corporate Bond Fund (HYG) and the SPDR Barclays High Yield Bond ETF (JNK) are the two largest ETFs that invest in speculative-grade bonds.

HYG, which is managed by BlackRock, has a 0.50% expense ratio and JNK, sponsored by State Street, has a 0.40% expense ratio. HYG is larger with $15.2 billion in assets versus $12.2 billion for JNK.

Both ETFs are billed as high-yield corporate ETFs and their three-year and five-year performance numbers are very similar. Nevertheless, the funds have some differences that investors should take care to understand before purchasing.

In terms of 30-day SEC yields, HYG is paying 5.18% while JNK is paying 5.26%.

HYG has more holdings at 755 compared with 521 for JNK. [Is the High-Yield Bond ETF Rally Really Over?]

The credit quality of HYG’s holdings appears a little better, although not significantly. This has led to a slightly lower standard deviation, a measure of price volatility.

For example, in 2008 when the wheels came off the economy and junk-bond market, HYG lost 17.4% for the year while JNK tumbled 25.7%, according to Morningstar. When the market recovered in 2009, HYG gained 28.5% while JNK rose 39.3%.

HYG has a relatively larger allocation to corporate bonds that are rated BBB or better. JNK holds more bonds that are CCC or lower. However, again, the credit-quality difference between the two ETFs isn’t dramatic.

Morningstar analyst Timothy Strauts in March 4 reports on both ETFs notes that the average credit quality of the constituents of both funds’ benchmark is B. In terms of average duration, a measure of interest-rate sensitivity, JNK is 4.2 years and HYG is 3.9 years.

In the past, disruptions in the bond markets have caused both ETFs “to trade at significant premiums and discounts to its net asset value,” Strauts cautions. Investors should be on the lookout for these premium or discounts to NAV before purchasing the funds, he adds.

There are some interesting sector distinctions. JNK has 87.5% in industrials, while HYG is more diversified in terms of sector allocations. [High-Yield Bond ETFs: Too Risky After Big Rally?]

For more information on speculative grade debt, visit our junk bonds category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own HYG and JNK.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.