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6 Best Bond ETFs of 2016 -- High Yield Tops

We are in the last week of 2016 and it's time to see how every asset class has performed this year. In this regard, let's take a look at how the bond market has fared in 2016 (read: Is the Treasury Bond ETF Rally About to End? ).

Flashback of 2016

The start of 2016 was in fact awesome for the fixed-income market as China-led global market worries, the 12-year plunge in oil prices and loss of momentum even in the otherwise-improving U.S. economy stirred up global market quandaries and people rushed to safe refuge bond ETFs.

The impact of the global financial market turmoil was so deep-rooted that the Fed could not enact more than one hike this year. Plus, Brexit or Britain's decision to cut ties with the European Union (EU) through a referendum arranged on June 23 dealt a blow to risky investing which is why yields on the benchmark 10-year U.S. Treasury notes slumped to record lows in early July.

In such a scenario, Trump's victory and his vows to cut taxes and boost fiscal spending raised inflation expectations, pushing bond yields higher. Speculation is rife that business investments will a get a new lifeline now. Also, the OPEC oil output cut deal played a role in pushing inflation higher. The Fed' has now forecast three rate hikes in 2017, up from two guided in September.

The notable changes were in the projection for the benchmark interest rate for 2017, 2018 and 2019. Projections for 2017, 2018 and 2019 were ticked up from 1.1% to 1.4%, 1.9% to 2.1% and from 2.6% to 2.9%, respectively. These are meaningful jumps from the 2016 projected rate of 0.6%. Fed's funds rate for the longer run was raised to 3% from 2.9% (read: Sole Fed Hike of 2016 Put These ETFs in Focus ).

Benchmark 10-Year U.S. Treasury bond yields rose to 2.55% on December 21 while some expect the yield to spike to 3% in coming months, not seen after early 2014.

Inside Toppers

In such a backdrop where low bond yields have ruled the fixed income world for the most part, investors rushed to earn higher yields for a valid reason, making high yield bond ETFs winners so far in 2016(as of December 23, 2016) (see all high-yield/junk bond ETFs here).

VanEck Vectors Fallen Angel High Yield Bond ETFANGL - Up 25.9%

This innovative fund uses the sampling strategy to track the performance of the BofA Merrill Lynch US Fallen Angel High Yield Index and focuses on 'fallen angel' bonds. Fallen angel bonds are high yield securities that were once investment grade but have fallen from grace and are now trading as junk bonds. The drive for high income also pushed investors to high yield bonds which made ANGL a winner. The fund yields about 5.41% annually (as of December 23, 2016) (read: Junk Bond ETF (ANGL) Soaring: Will its Flight Last? ).

AdvisorShares Peritus High Yield ETF HYLD - Up 16.7%

The fund generates a high current income with a secondary goal of capital appreciation. The fund yields about 6.51% annually (as of December 23, 2016) while it charges a net expense ratio of 1.28%.

Guggenheim BulletShares 2022 High Yield Corporate Bond ETF BSJM - Up 16.7%

The fund looks to track the BulletShares USD high Yield Corporate Bond 2022 Index. It charges 42 bps in fees and yields about 4.99% annually (as of December 23, 2016).

WisdomTree BofA Merrill Lynch High Yield Bond Negative Duration ETF HYND -Up 16.6%

The fund looks to track the BofA Merrill Lynch 0-5 Year US High Yield Constrained, Negative Seven Duration Index. It takes long positions in bonds as represented by the BofA Merrill Lynch 0-5 year US High Yield Bond Index while takes short positions in Treasury securities to target the negative duration. The fund yields about 4.65% annually (as of December 23, 2016) and an expense ratio of 0.48%.

ProShares High Yield-Interest Rate Hedged HYHG - Up 16.1%

HYHG is another ETF which has an interest rate hedge built into its strategy as it takes a duration-matched short position in U.S. Treasury futures. This $97.4 million ETF also has a pretty high yield of 5.36% and a modest expense ratio of just 50 basis points (read: Hedged & Inverse Bond ETFs to the Rescue if Rates Rise ).

Deutsche X-trackers High Yield Corporate Bond - Interest Rate Hedged ETF HYIH - Up 15.5%

HYIH - which looks to track high yield corporate bonds and has an interest rate hedge built into its strategy to counter rising rate risks - was among the winners in the year. The fund yields about 5.25% annually (as of December 23, 2016) and charges 35 bps in fees.

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VANECK-FA HYB (ANGL): ETF Research Reports

GUGG-BS2022 HYC (BSJM): ETF Research Reports

DBX-HY CB IRH (HYIH): ETF Research Reports

WISDMTR-MLHYBN (HYND): ETF Research Reports

PERITUS-HIGH YL (HYLD): ETF Research Reports

PRO-HI YLD IRH (HYHG): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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