When building investment portfolios, the hunt for returns and low fees can be equally important, especially when it comes to bond ETFs. This is especially true as high yield bond ETFs become more attractive to investors.
How does the current situation look for high yield bond ETFs such, as HYG?
The iShares iBoxx $ For quite some time now the High Yield Corporate Bond ETF (HYG) has been a choice, among investors looking to tap into the high yield bond market. However, its performance relative to benchmarks like the S& The surge in the S&P 500 Index since, around mid 2009 has sparked worries. Since around mid 2014 its concerning to note that the price of HYG has dropped by, than 20% almost wiping out its current yield of 5%.8%. During this same period, the S& P 500 Index saw an impressive rise of over 130%.
The fundamental issue with HYG lies not only in its performance but also in its higher Expense Ratio of 0.5%. The charges could greatly affect the returns on investments in a market where even the smallest percentage makes a difference.
Where can I discover substitutes for HYG within high yield bond ETFs?
For those looking for investment options it’s important to explore the world of high yield bond exchange traded funds. Out of 524 bond funds examined in a recent study only 80 were classified as high yield. Among these, a mere 12 hold assets over $1 billion with HYG being the largest. Yet the SPDR Portfolio High Yield Bond ETF (SPHY) stands out as a budget friendly option with a reduced Expense Ratio of only 0.1% and a higher 10-year Annual Return.
Another recommended choice is the Vanguard Long-Term Corporate Bond ETF (VCLT), which provides a different high-yield strategy. The Schwab U.S. Corporate Bond ETF (SCYB) deserves a mention here as well for its ultra-low Expense Ratio of 0.03 per cent.
How can we evaluate the quality of high yield bond exchange traded funds (ETFs)?
When evaluating high yield bond ETFs, it’s equally important to understand what lies “under the hood”—namely the quality of the bonds held. While high yield bonds are still not nearly as diversified as stocks with names like HYG spreading risk across many issuers, this diversification goes a long way to reduce the tight probability of default that any one of them has. On top of that, the post-COVID restructuring of corporate America has resulted in healthier debt coverage ratios in many sectors, thanks to steep cost-cutting and/or government support.
Buying ‘fallen angels’ – bonds that have been demoted from investment-grade to high yield – is another apparently promising strategy. ETFs such as FALN seek to capture this strategy, perhaps the best of both worlds, affordability and higher yields.
How do communities such, as Millers TradeHub influence decisions when it comes to investing?
But what if you’d like to hear directly from the market participants? What if you’d like to glean insights directly from investment professionals? Tools such as Miller’s TradeHub, which forges a community of investors, can become an excellent resource where you can share thoughts and refine them. This community can help in your building of portfolio, especially if you have questions on investment tools, strategies and the market trends. An investor can get comments from the hordes who have gone before them and can gain insights into the most important issues, owning a high-yield bond ETF for instance.
How relevant are value investing principles when choosing high yield bond ETFs?
Value investing, the strategy famously championed by legends like Ben Graham, exploits market inefficiencies to uncover securities trading at prices less than their intrinsic value. The basic tenets of value investing can be applied to high-yield bond ETFs. It forces you to look beyond the superficial yield and fees. Other factors to consider include portfolio quality, issuer creditworthiness and the potential for capital appreciation – all of which are very consistent with the principles of value investing. Both netnethunter.com and oldschoolvalue.com offer valuable resources for investors who are considering high-yield bond ETFs and who are using a value investing approach.
To summarise, the fact that the high-yield bond sector ETF like HYG is the second-most traded ETF in the US market but comes with a rather high expense ratio and performance failings is worth our attention for even the low-fee ETFs like SPHY and SCYB and also those ETFs that present a new strategy in high yield bonds like FALN and ANGL. One important caveat is that you could further improve your investment decisions about high-yield bond ETFs if you can learn to become an active member of different investment communities as well as follow the value investing wisdom (though it’s considered wisdom, not a kinglike rule).
How do I calculate the cost ratio of a high yield bond exchange traded fund (ETF)?
To find out the cost ratio of a high yield bond ETF you can look at the funds prospectus. Visit financial websites that provide data on ETFs. The expense ratio shows how much it costs each year to own the ETF, calculated as a percentage of the funds assets. For instance, the iShares iBoxx $ The High Yield Corporate Bond ETF (HYG) has no expense ratio.5%, while the The SPDR Portfolio High Yield Bond ETF (SPHY) boasts a lower ratio of 0.1%.
Where can I locate details regarding the bonds that support a high yield ETF?
The bonds held by the fund behind a HY ETF should be available from the website of the ETF provider (or in many cases, via an investment research platform or financial news website that will have an HY issuer-level analysis of the holding underlying the ETF including the name of the issuer, their credit rating and the sector to which they belong). This data is needed to assess the risk profile and diversification of the HY bond portfolio behind it.
What dangers come with putting money into high yield bond exchange traded funds (ETFs)?
The risks involved in investing in ETFs of high-yield bonds include credit risk interest-rate risk and liquidity risk. All of these risks arise because issuers of high-yield bonds have lower credit ratings, making their bonds more likely to default. Thinness of the markets means that interest rates increase or decrease in steps with each incremental change in the rate having a high effect on bond prices. ETF performance of corporate bond funds can be particularly susceptible to liquidity issues during times of market stress, when liquid reserves are important.
When is the right time to think about implementing a strategy involving angels bonds?
One way to potentially balance higher yields and potential quality investments is to consider a fallen angels bond strategy. Here investors invest in bonds that have been downgraded from investment-grade to high-yield status. ETFs like FALN and ANGL specifically concentrate on this kind of approach. This strategy might be intriguing for investors during economic recoveries or in other periods in which market conditions lead to the restructuring and upgrading by prior downgraded issuers.
How crucial is seeking guidance from community platforms such as Millers TradeHub when deciding on which ETFs to invest in?
Community insight from Miller’s TradeHub and other platforms is valuable in these circumstances. This advice isn’t just about offering diverse opinions or real-time discussions — it provides insights you likely wouldn’t have obtained with conventional research. You may get practical advice, discover investment strategies you’d never considered and even hear stories and market sentiment that could help you as an individual. After all, as helpful as the ETF market can be, it’s also known for its complexity.