Two Ways to Win With This ETF - InvestingChannel

Two Ways to Win With This ETF

Proprietary Data Insights

Financial Pros Top High-Yield Bond ETF Searches in the Last Month

Rank Name Searches
#1 iShares iBoxx $ High Yield Corporate Bond ETF 795
#2 SPDR Bloomberg High Yield Bond ETF 253
#3 Invesco Senior Loan ETF 13
#4 iShares Broad USD High Yield Corporate Bond ETF 9
#5 SPDR Bloomberg Short Term High Yield Bond ETF 7


Two Ways to Win With This ETF

Something is amiss…

Typically, higher interest rates drive “zombie” companies into bankruptcy. These zombies are businesses that stayed afloat on cheap debt but don’t turn a profit.

But so far, we haven’t seen the rash of bankruptcies we’d expect.

That may be about to change.

Our proprietary Trackstar stock search tracker has seen a flurry of activity in high-yield ETFs, specifically iShares iBoxx $ High Yield Corporate Bond ETF (HYG). It’s been getting more searches than First Solar, PepsiCo, and Mastercard, which is unusual for a typically tepid ETF.

High-yield bonds (AKA junk bonds) pay better interest rates than quality debt. Think of debt from Carvana compared to from JPMorgan.

Generally, the high-yield bond market tracks the stock market, since investors see them both as risk assets.

But the HYG ETF has outperformed the SPDR S&P 500 ETF Trust (SPY) by almost 4% year to date.

So is this flurry of searches a sign of confidence or of wary, watchful eyes?

While we can’t know for certain, it seemed like a good time to dig into the fund and assess its value.

iShares iBoxx $ High Yield Corporate Bond ETF 

HYG is one of the most widely owned high-yield bond ETFs. It invests in a broad range of U.S. high-yield corporate bonds. 

As we noted, investors consider high-yield corporate debt risky, typically defaulting at a rate of around 2% during times of extreme stress.

To compensate for the additional risk, investors demand higher coupon payments for par value ($1,000 increments).

Key Facts About HYG

  • Net assets of fund: $17.7 billion
  • Number of holdings: 1,223
  • Effective duration: 4.05 years
  • Average yield to maturity: 6.2% 

HYG has exposure to bonds in many different sectors. Here’s the breakdown: 


Source: iShares

With more than 1,200 bonds in the portfolio, HYG is highly diversified, which helps offset company-specific risk.

Currently, its largest position is in bonds from CCO Holdings, LLC, which is 2.38% of the portfolio’s weighting. 

Below are the top 10 holdings:


Source: iShares

If you invested in HYG five years ago, you would have made about 9.4% on the investment, assuming you reinvested dividends. 


Source: iShares

And a 10-year time horizon would have yielded you close to 40%.

Timing entries is crucial to maximize returns.

That said, many folks buy high-yield bond funds for consistent income generation, not so much capital appreciation.


Most ETFs charge fees for running them, aka expense ratios. HYG charges an expense ratio of 0.48%. 

Investing and Trading HYG

Again, people buy ETFs like HYG for income. HYG yields a dividend of 5.06%. 

HYG is one of the most actively traded ETFs, with a daily trading volume averaging 40.4 million shares. In addition, traders can play HYG with options if they desire. 

Alternatives to HYG

HYG isn’t the only high-yield ETF in the market. 

In fact, investors have many choices. 

They include SPDR Bloomberg Short Term High Yield Bond ETF (SJNK), Invesco Senior Loan ETF (BKLN),  iShares Broad USD High Yield Corporate Bond ETF (USHY), and SPDR Bloomberg High Yield Bond ETF (JNK). 

Portfolio Composition

  • HYG: 1,223 positions
  • SJNK: 740 positions
  • BKLN: 130 positions
  • USHY: 1,945 positions
  • JNK: 1,229 positions

USHY is the most diversified ETF in the group, with roughly 50% more holdings than its peers. BKLN is the least, with alarmingly low diversification. 

Fees Comparison

  • HYG: 0.48%
  • SJNK : 0.4%
  • BKLN: 0.65%
  • USHY: 0.22%
  • JNK: 0.4%

USHY charges the lowest fees at nearly half the cost of its peers, while BKLN charges the highest at 0.65%. 

Performance Comparison – Returns for Last Five Years

  • HYG: 9.4%
  • SJNK: 15.1%
  • BKLN: 11%
  • USHY: 12.3% 
  • JNK: 8.3%

SJNK, BKLN, and USHY have delivered double-digit returns annually, while JNK and HYG have failed to do so.

Current Dividend Yield

  • HYG: 5.06%
  • SJNK: 5.49%
  • BKLN: 4.11%
  • USHY: 6.01% 
  • JNK: 5.6%

USHY packs the most punch with a dividend yield of 6.01%, followed by JNK at 5.6%. 

But all the yields on this list are relatively close to one another.

Our Opinion 10/10

Market uncertainty and elevated volatility have been the theme in 2022, and with 2023 around the corner, it’s likely to stay that way. 

Diversifying your portfolio into high-yield bond ETFs makes sense in this environment.  

Allocating a small portion of your portfolio to HYG or USHY is one way to reduce risk exposure. 

They offer a chance for investors to capture both high dividend yields and potential capital appreciation. 

That said, timing is everything.

If you want to get the most bang for your buck, grab shares at distressed-level prices.

Based on the charts, we’re there right now.

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