New Fund Alert
iShares iBoxx High Yield Corporate (AMEX: HYG, $101.20) — Until recently, ETF investors have had zero options when it comes to high-yield corporate bonds, otherwise known as
junk
bonds.
However, Barclay's changed all that in April, introducing the first
fund designed to offer broad exposure to this particular asset class.
Specifically, HYG tracks a basket of roughly 50 securities representing
the most liquid sub-segment of the high-yield universe.
While the yield differential between junk bonds and comparable Treasuries tends to fluctuate, the spread is currently between 2% and 3%. The tradeoff, of course, is the higher risk that comes with these less-creditworthy debt securities.
However, many fixed-income investors are more than willing to assume additional volatility to capture that extra yield — particularly when the economy is on track and defaults/credit downgrades are low. High-yield bonds also tend to trade more like equities at times, and are typically less vulnerable to interest rate fluctuations than other bonds.
All things considered, we are pleased that ETF investors finally have a way to play this group.
Our View —> Boasting a hefty average portfolio yield-to-maturity of 7.4%, HYG is at least worth a look — and may prove to be a viable alternative when compared to more expensive high-yield mutual funds.
While the yield differential between junk bonds and comparable Treasuries tends to fluctuate, the spread is currently between 2% and 3%. The tradeoff, of course, is the higher risk that comes with these less-creditworthy debt securities.
However, many fixed-income investors are more than willing to assume additional volatility to capture that extra yield — particularly when the economy is on track and defaults/credit downgrades are low. High-yield bonds also tend to trade more like equities at times, and are typically less vulnerable to interest rate fluctuations than other bonds.
All things considered, we are pleased that ETF investors finally have a way to play this group.
Our View —> Boasting a hefty average portfolio yield-to-maturity of 7.4%, HYG is at least worth a look — and may prove to be a viable alternative when compared to more expensive high-yield mutual funds.
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