ETFs
3 High-Yield Bond ETFs for Income Investors
Investing in high yield bond ETFs offers the potential for higher returns compared to investment grade bond ETFs, making them attractive to income-oriented investors seeking a higher yield. However, it is important to note that high-yield bonds also carry higher credit risk, so they are better suited to investors with a high risk tolerance.
Given the context, let’s take a look at the best performing high yield bond ETFs: VanEck Vectors Fallen Angel High Yield Bond (ENGL), SPDR Bloomberg Barclays High Yield Bond ETF (JNK), and iShares iBoxx $ High Yield Corporate Bond ETF (HYG) with high return potential and instant diversification.
In May, the US high-yield bond funds saw the biggest inflows of the year, influenced primarily by the appeal of higher yields, the potential for price appreciation amid planned rate cuts by the Federal Reserve and diminishing corporate credit risks. According to LSEG Lipper data, US high-yield bond funds attracted $5 billion in capital flows in previous months, the highest since December.
Additionally, from January to May 2024, total inflows reached $6.10 billion, the highest level in three years.
Additionally, amid market contingency and instability, where more than two-thirds of total bond market ETFs are down this year, high-yield bond ETFs have fared better, with the exception of leveraged and inverse products, based on total return. More than 80% of high yield bond ETFs posted positive returns for the year.
Although high-yield bond ETFs offer attractive returns, typically higher than investment-grade bond ETFs, they also carry increased risk. These ETFs invest in bonds issued by companies with lower credit ratings. The higher yields compensate investors for the higher default risk associated with these bonds.
Given these encouraging trends, let’s take a look at the fundamentals of the top three High Yield Bond ETFstarting with number 3.
ETF #3: VanEck Vectors Fallen Angel High Yield Bond (ENGL)
ANGL tracks the market value-weighted index of bonds, which were rated investment grade at the time of issuance but were later downgraded to below investment grade. The strategy aims to buy low and sell high to achieve maximum total return. ANGL is limited to US dollar issues but holds a significant portion of debt from non-US issuers. The ETF tracks the ICE BofA US Fallen Angel High Yield 10% Constrained Index.
The fund has assets under management (Assets under management) of $3.02 billion. ANGL’s top holdings include Vodafone Group PLC Notes 2019-04.04.79 Global Fix/Floating Rate with a weighting of 3.72%, followed by Newell Brands Inc. 5.7% 01-APR-2026 at 3.53% and Entegris Escrow Corp. 4.75% 15-APR-2029 and Walgreens Boots Alliance, Inc. 3.45% 01-JUN-2026 to 2.74% and 2.48%, respectively.
The ETF has a total of 130 holdings, with its top 10 holdings accounting for 21.58% of its assets under management. ANGL’s expense ratio is 0.25%, lower than the category average of 0.43%. Over the past month, its cash inflow was $38.91 million, and over the past six months it was $219.55 million.
ANGL pays an annual dividend of $1.64, which translates to a yield of 5.75% at the current price level. Additionally, the fund’s dividend distributions have grown at a CAGR of 3.6% over the past three years. Notably, ANGL has paid dividends for 11 consecutive years.
ANGL has surged 3.7% over the past year to close the last trading session at $28.51. It has a beta of 0.52. The net asset value of the fund was $28.47 as of June 11, 2024.
ENGL POWR Ratings reflect strong prospects. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ANGL has an A rating for Trading and Buy and Hold. In category B High Yield Bond ETF group, it is ranked #10 out of 59 ETFs.
To access all of ANGL’s POWR reviews, Click here.
ETF n°2: SPDR Bloomberg Barclays High Yield Bond ETF (JNK)
JNK seeks to provide investment results that correspond to the price and yield performance of the Bloomberg High Yield Very Liquid Index. It provides diversified exposure to high-yield US dollar-denominated corporate bonds with above-average liquidity. JNK offers a liquid and more cost-effective way to access high-yielding exposure than individual bonds.
With $8.31 billion in assets under management, JNK’s top holdings are State Street Institutional Liquid Reserves Fund with a weighting of 0.90%, TIBCO Software Inc. 6.5% as of March 31, 2029 at 0.42 % and Mozart Debt Merger Sub, Inc. 3.875% as of 01-APR. -2029 and Cloud Software Group, Inc. 9.0% as of September 30, 2029 with weights of 0.42% and 0.41%, respectively.
The fund has a total of 1,194 holdings, with its top 10 holdings representing 4.37% of its assets under management. Its expense ratio is 0.40%, compared to the category average of 0.43%.
JNK pays an annual dividend of $6.21, which translates to a yield of 6.60% at the current price level. Additionally, the fund’s dividend distributions have grown at a CAGR of 6.1% over the past three years. JNK has paid dividends for 16 consecutive years.
JNK has gained 1.6% over the past six months and 2.9% over the past year to close the latest trading session at $94.18. It has a beta of 0.45. The net asset value of the fund was $93.95 as of June 11, 2024.
JNK’s strong fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A rating for trading and buy-and-hold. Among 59 ETFs in the High Yield Bond ETF group, JNK is ranked #3.
Click here to see all JNK notes.
ETF #1: iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
HYG tracks a market-weighted index of high-yield corporate debt. The ETF offers a suite of portfolio building blocks designed to provide broad and diversified exposure to major asset classes. The ETF tracks the iBoxx USD Liquid High Yield Index. Its core exposure through the iBoxx index it tracks is strong, covering the most liquid segment of the junk bond market.
The fund has assets under management of $17.16 billion. Its top holdings include TIBCO Software Inc. 6.5% 31-MAR-2029 and Mozart Debt Merger Sub, Inc. 3.875% 01-APR-2029 with a weighting of 0.40% each, followed by Cloud Software Group, Inc. 9.0% 30-SEP. -2029 and DISH Network Corporation 11.75% on November 15, 2027 at a weighting of 0.39% each, respectively.
HYG owns a total of 1,260 holdings, with the top 10 holdings accounting for 3.53% of its assets under management. The fund has an expense ratio of 0.49%, higher than the category average of 0.43%. Over the past month, HYG fund inflows were $2.26 billion, and $835.19 million over the past three months. Additionally, it has a beta of 0.43.
HYG pays an annual dividend of $4.58, which translates to a yield of 5.94% at the current price level. The fund’s dividend distributions have grown at a CAGR of 4.81% over the past three years.
HYG has gained 1.6% over the past six months and 3.2% over the past year to close the latest trading session at $77.06. The fund has a net asset value of $23.15 as of June 11, 2024.
HYG’s POWR Ratings reflect its strong outlook. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
HYG has an A rating for buy, hold and trade. The fund tops the list of 59 ETFs in the same group.
To access all POWR ratings for HYG, Click here.
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HYG stock was trading at $77.59 per share Wednesday morning, up $0.53 (+0.69%). Year to date, HYG has gained 2.86%, compared to a 14.45% rise in the benchmark S&P 500 over the same period.
About the author: Rjkumari Saxena
Rajkumari began her career as a writer, but gradually moved into financial journalism, leveraging her business background. Fascinated by the interplay of business and economic changes in equities, she aspires to grow as an analyst. With a knack for simplifying complex financial concepts, his mission is to provide investors with information that leads to profitable decisions. More…