In a world where CDs can yield up to 7%, you might wonder why to bother with bond ETFs. The truth is you can find bond ETFs yielding even more than that.
Thirteen actively traded bond ETFs, including Virtus InfraCap US Preferred Stock ETF, Invesco Global Short Term High Yield ETF and SPDR Blackstone Senior Loan ETF, all sport SEC yields of more than 8%, says an Investor's Business Daily analysis of data from Morningstar Direct.
Sure, they all carry more risk than a CD does. But some investors might think the added yield more than compensates them. "Investors have been willing to take on more risk either through duration or credit risk," said Todd Rosenbluth of Vetta Fi.
Money Pours Into Bond ETFs
Investors keep piling cash into bond ETFs, even though boring old CDs are paying so well.
Bond ETFs hauled in $117 billion in new money this year, including $17 billion just in the month of July, Rosenbluth says. "Fixed income ETFs have been very popular with investors in 2023," he said.
Part of investors' interest in bond ETFs is the fact that most CDs people actually buy are still yielding less than 7%. Among most mainstream offerings, CD yields are topping out at 5.6%, Bankrate says. That's not all that much better than the 4.2% SEC yield on the iShares Core US Aggregate Bond ETF.
AGG is one of the most popular among the broad market index ETFs, Rosenbluth says. That ETF alone hauled in $2.4 billion. ETFs like this "form the core for many taxable and tax-exempt based client portfolios," he said.
Many investors, though, think the Federal Reserve may cut interest rates by next year. And so, many are locking in today's higher long-term rates now for a longer time in the future. The iShares 20+Year Treasury Bond ETF was the industry's most popular fixed income ETF so far this year, adding $4.7 billion, Rosenbluth says. The ETF's duration is much longer than the broad market's roughly 6.5 years. That means investors who buy it now lock in today's rates for a longer period of time.
Finding Super-Size Bond ETF Yields
If you're just looking for big yields, the leader is Virtus InfraCap Preferred Stock. The $606 million-in-assets bond ETF sports a head-turning SEC yield of 10.4%.
The ETF distinguishes itself by investing in preferred stock, which is kind of a hybrid of stock and bonds. Companies that issue preferred stock typically pay higher yields on the shares than on their regular common stock. But unlike bonds that must be paid on time, companies may halt their preferred stock payouts. The ETF owns more than 200 different preferred stocks to help control risk of any one issuer struggling to pay. Just watch the fees on this ETF. It charges a high annual fee of 1.4%.
Another high-yield bond ETF champion is Invesco Global Short Term High Yield Bond ETF. The $166-million-in-assets ETF takes a more traditional approach to hit its 9.7% SEC yield. It keeps costs to investors low with an annual fee of 0.35%.
This ETF focuses primarily on riskier BB and B rated bonds from issuers around the world. Additionally, 13.3% of its bonds are rated lower than B. Nearly 80% of its holdings are corporate bonds, including those issued by overseas car sellers.
Above all, investors are finding how fixed income plays a role in their portfolios when there's more competition. "Using ETFs, advisors are able to maintain their exposure to fixed income by rotating to take on additional risk in an attempt to generate additional total return," Rosenbluth said.
Highest Yielding Actively Traded Bond ETFs
| Name | Ticker | Net assets ($ billions) | SEC Yield |
|---|---|---|---|
| Virtus InfraCap US Preferred Stock | $0.6 | 10.36% | |
| Invesco Global Short Term Hi Yld Bd | 0.2 | 9.65 | |
| SPDR Blackstone Senior Loan | 4.5 | 9.54 | |
| JPMorgan BetaBuilders $ HY Corp Bnd | 0.4 | 8.59 | |
| VanEck EM High Yield Bond | 0.4 | 8.56 | |
| First Trust Senior Loan | 2.1 | 8.40 | |
| SPDR® Portfolio High Yield Bond | 1.7 | 8.40 | |
| iShares Broad USD High Yield Corp Bd | 9.3 | 8.39 | |
| Invesco Senior Loan | 4.0 | 8.33 | |
| BNY Mellon High Yield Beta | 0.1 | 8.32 | |
| SPDR® Blmbg ST HY Bd | 3.8 | 8.25 | |
| SPDR® Blmbg High Yield Bd | 8.6 | 8.10 | |
| iShares 0-5 Year High Yield Corp Bd | 5.4 | 8.06 |
