For an asset class that isn't even 20 years old,
exchange-traded products have certainly been on the receiving end
of plenty of controversy. Blamed for everything from rising
correlations to higher commodities prices to the May 2010 flash
crash, ETFs have not been strangers to negative headlines.
In other words, finding new areas of concern, consternation,
controversy and misunderstanding within the ETF universe should
at this point be hard to do, but where there's a will to whip, a
whipping boy will usually be found.
Following an usual $725 million redemption earlier this month
in the $10.5 billion SPDR Barclays Capital High Yield Bond ETF
(NYSE:
JNK
), junk bond funds are now arguably the new ETF whipping boy. The
Wall Street Journal claims investor interest in
high-yield bonds is waning
. Moody's Investors Service said earlier this week that the JNK
trade resulted in the fund trading at a discount to its net asset
value after trading at a premium to NAV for several months and
that increased institutional trading of ETFs can put individual
investors at risk.
Addressing the Moody's point, this is a ratings agency that
still has an investment grade rating on Spain, so its credibility
on shining the spotlight on what is and isn't bad for investors
is dubious at best. The Journal article even acknowledges that
since August 2011 there have been only three weeks that saw net
flows out of junk bond funds, a period that saw almost $26
billion flow into such funds, but that's buried below the point
about $2.46 billion being taken out of those funds in the most
recent week.
What no one seems to care to acknowledge is that not only are
junk bond ETFs increasing in number, but these
new funds are doing pretty well right off the bat
. As one example, Van Eck Global, the fifth-largest U.S. ETF
issuer and parent company of Market Vectors, has introduced three
new high-yield bond funds that have raked in a combined $39
million in AUM. That may not sound like much for three ETFs, but
consider this: None of those ETFs is even two months old.
We'll let the market decide if junk bond ETFs are good or bad.
For now, use this guide to navigate the expanding world of
high-yield bond offerings.
iShares iBoxx $ High Yield Corporate Bond Fund (NYSE:
HYG
)
With over $14.3 billion in AUM, HYG is the big kahuna of junk
bond ETFs. With an expense ratio of 0.5%, HYG holds 601 primarily
U.S. issues. Consumer staples, financials, energy and
telecommunications get double-digit sector allocations with
industrials not far behind at 9.9%. Year-to-date, HYG is off
1.9%, but the fund has a 12-month trailing yield of 7.36% and
pays a monthly dividend, two factors that explain why the fund
has been so popular with investors.
SPDR Barclays Capital High Yield Bond (NYSE:
JNK
)
In terms of AUM, JNK plays second fiddle HYG, but the SPDR fund
is cheaper (0.4% in annual fees) and is more heavily traded. JNK
is home to "just" 227 holdings, but its yield of 7.51% tops HYG.
The SPDR fund has also slightly outperformed its iShares rival
this year. For whatever reason, JNK appears to be more
controversial than HYG and if the former violates support at $38,
near-term downside could be significant.
SPDR Barclays Capital Short Term High Yield Bond ETF
(NYSE:
SJNK
)
With an average maturity of 3.33 years, SJNK is the short-term
cousin to JNK. Before folks rush to say investors are fed up with
high-yield bonds and the corresponding ETFs, they might want to
do some fact-checking with SJNK. This ETF came to market in
mid-March and already has more than $129 million in assets under
management. SJNK also charges 0.4% and is home 261 issues, but
the yield is just 0.68%.
PowerShares Fundamental High Yield Corporate Bond
Portfolio (NYSE:
PHB
)
PHB is the PowerShares alternative to HYG and JNK and it might be
the best alternative because it has outperformed its larger
rivals on a year-to-date basis. PHB is small compared to HYG and
JNK, but not small overall. The fund, which charges 0.5%, has
$927 million in AUM.
Consumer discretionary, energy, financials and industrials
dominate the sector mix. This fund holds almost 220 issues,
yields nearly 5.4% and also pays a monthly dividend.
Market Vectors High-Yield Muni ETF (NYSE:
HYD
)
The Market Vectors High-Yield Muni ETF is often left out of the
traditional junk bond conversation and that's quite alright.
While there has been plenty of talk about the demise of muni
bonds, a situation that has yet to materialize
a fund like HYD is one of the few high-yield bond
options a conservative investors might feel comfortable with
.
With an expense ratio of 0.35%, HYD is cheaper than the other
funds mentioned to this point and the $620 million ETF garners
overall and three-year four-star ratings from Morningstar. HYD
yield 5.3% and pays a monthly dividend. As an aside, when other
junk bond ETFs were hit on strong volume on Thursday, HYD touched
a new 52-week high on above average trade.
Market Vectors Fallen Angel High Yield Bond ETF (NYSE:
ANGL
)
ANGL debuted in mid-April and already has $10 million in AUM.
So-called fallen angel companies are typically large, familiar
companies that have lost investment-grade status where as many
companies issuing high-yield bonds are smaller, more obscure and
have never had investment-grade status. What investors need to
know is that MOST, but not ALL of ANGL's holdings are
non-investment grade. The fund charges 0.4% and is expected to
pay a monthly dividend.
Market Vectors International High Yield Bond ETF (NYSE:
IHY
)
The oldest of the three new Market Vectors junk bond ETFs, IHY is
off to a fine start with almost $19 million in AUM in less than
two months of trading. Most of IHY's issues mature in the one to
10-year time frame. IHY features issues denominated in euros,
U.S. dollars, Canadian dollars or pound sterling issued in the
major domestic or Eurobond markets.
Regarding IHY's currency exposure, it should be noted that
less than a third of the fund's 90 holdings are denominated in
euros and most are U.S. dollar-denominated.
Note IHY has a competitor in the form of the iShares Global
High Yield Corporate Bond Fund (BATS: GHYG).
Market Vectors Emerging Markets High Yield Bond ETF
(NYSE:
HYEM
)
HYEM debuted earlier this month and already has almost $10
million in AUM. Clearly, the combination of emerging markets and
high-yield bonds under one roof isn't for everyone, but EM debt
is gaining a bigger footprint
in the high-yield universe and has often
outperformed comparable developed market fare
.
China, Russia, Indonesia and Brazil combine for almost 39% of
HYEM's country weight and the fund has a rival in the form of
the...
iShares Emerging Markets High Yield Bond Fund (BATS:
EMHY)
This ETF actually debuted the same day as HYEM and charges more
(0.65% compared to 0.4% for HYEM). EMHY is another fine example
of look before you claim that junk bonds aren't in style anymore.
Less than two months old and with a country mix that includes the
likes of Venezuela, Nigeria, Lebanon, Ukraine and Hungary, EMHY
has still managed to attract more than $14 million in AUM. HYEM
and EMHY are the first two ETFs devoted to emerging markets
corporate junk bonds.
iShares Global ex USD High Yield Corporate Bond Fund
(BATS: HYXU)
In the current market environment, owning HYXU is going to take
some fortitude because "ex-USD" really means a 79.5% allocation
to euro-denominated bonds. That probably explains why the new
fund (it debuted April 3) has lost 6.6%. With an expense ratio of
0.4%, HYXU holds 102 issues and has over $23 million in AUM.
Other funds to consider: The iShares B - Ca Rated Corporate
Bond Fund (BATS: QLTC), which debuted in late April, and the
Market Vectors LatAm Aggregate Bond ETF (NYSE:
BONO
), which does have some exposure to non-investment grade Latin
American bonds.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.