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Fixed-Income Investors Turning Yield Up to ‘High’

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This article was originally published on ETFTrends.com.

While investors were turning their capital allocation down to the "low" setting in U.S. equities as the Dow Jones Industrial Average lost as much as 500 points on Monday, fixed-income investments were turned up to the "high" setting with an influx of capital into high-yield bond exchange-traded funds (ETFs).

With the October sell-offs in the rearview mirror for investors, it appears they're ready to jump back into riskier, high-yielding ETFs like the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and iShares iBoxx $ High Yield Corp Bd ETF (HYG). Last week saw a healthy influx of $7 billion into fixed-income ETFs in general.

"In fixed income, high yield names continued to see buyers. JNK and HYG both saw block buyers throughout the day," said Brian Gilman, ETF Sales & Trading at Virtu Financial.

JNK seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays High Yield Very Liquid Index, which is designed to measure the performance of publicly issued U.S. dollar denominated high yield corporate bonds with above-average liquidity. 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.

Alternate High-Yield ETF Options

Fixed-income investors who are thirsty for high-yielding assets, particularly in the ETF space, can also explore other high-yield options, such as the ProShares High Yield—Interest Rate Hdgd (HYHG) and WisdomTree Interest Rt Hdg Hi Yld Bd ETF (HYZD).

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.

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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