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Be Nimble With Junk Bond ETFs

This article was originally published on ETFTrends.com.

Bond market observers widely expect the Federal Reserve to boost borrowing costs at its September and December meetings. That could make many fixed income investors pensive about high-yield corporate debt and the corresponding exchange traded funds.

The SPDR Barclays Short Term High Yield Bond ETF (SJNK) is an alternative to consider if rates rise because SJNK offers income investors a lower duration avenue to high-yield corporates without a significant sacrifice in terms of yield.

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.

Lower Rate Risk

SJNK has an option-adjusted duration of just 2.33 years, which is below the comparable metric on traditional junk bond ETFs. The fund, which holds over 700 bonds, has an average yield to worst of 5.88%.

SJNK allocates about 81% of its combined weight to bonds rate BB or B, but the ETF also features exposure to CCC-rated debt. Bonds rated CCC and lower are generally considered highly speculative and that group accounts for almost 18% of SJNK's roster.

Related: Yield Curve will Flatten, No Looming Recession

Some professional bond investors believe investors should consider corporate credit and high-yield over everything else and shorter duration over long duration exposure. Investors can combine non-correlating assets to mitigate risk in an income-focused portfolio.

Although SJNK is lower by about half a percent this year, the ETF resides just 2% below its 52-week high, which was achieved late last year.

SJNK, which is almost six and a half years old, charges 0.40% per year, or $40 on a $10,000 investment.

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