Investing in high-yield bond ETFs offers the potential for higher returns compared to investment-grade bond ETFs, making them attractive for income-focused investors seeking greater yield. However, it’s important to note that high-yield bonds also come with higher credit risk, so these are best suited for investors with a high-risk tolerance.
Given the backdrop, let’s look at the best-performing high-yield bond ETFs: VanEck Vectors Fallen Angel High Yield Bond (ANGL), SPDR Bloomberg Barclays High Yield Bond ETF (JNK), and iShares iBoxx $ High Yield Corporate Bond ETF (HYG) with a high potential for returns and instant diversification.
In May, the U.S. high-yield bond funds experienced the biggest inflows of the year, influenced primarily by the allure of higher yields, potential for price appreciation amid anticipated Federal Reserve rate cuts, and diminishing corporate credit risks. As per LSEG Lipper data, U.S. high-yield bond funds attracted $5 billion in inflows in the previous months, the highest since December.
Moreover, from January to May i2024, the total inflows reached $6.10 billion, marking the highest in three years.
Besides, amid market contingency and unstable outcomes where than two-thirds of total bond market ETFs are down this year, the high-yield bond ETFs have held up best, except leveraged and inverse products, on a total return basis. Over 80% of high-yield bond ETFs have shown positive returns for the year.
While high-yield bond ETFs offer attractive yields, typically higher than investment-grade bond ETFs, they also come with increased risk. These ETFs invest in bonds issued by companies with lower credit ratings. The higher yields compensate investors for the greater risk of default associated with these bonds.
Given these encouraging trends, let’s look at the fundamentals of the top three High Yield Bond ETFs, beginning with number 3.
ETF #3: VanEck Vectors Fallen Angel High Yield Bond (ANGL)
ANGL tracks the market-value-weighted index of bonds, which were rated investment grade at issuance but later downgraded to sub-investment grade. The strategy aims to buy low and sell high for maximum total returns. ANGL is limited to USD issues but holds a sizable share 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 (AUM) of $3.02 billion. ANGL’s top holdings include Vodafone Group PLC Notes 2019-04.04.79 Global Fixed/Floating Rate with a 3.72% weighting, 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 at 2.74% and 2.48%, respectively.
The ETF has a total of 130 holdings, with its top 10 assets comprising 21.58% of its AUM. ANGL’s expense ratio is 0.25%, lower than the category average of 0.43%. Over the past month, its fund inflows were $38.91 million, and $219.55 million over the past six months.
ANGL pays an annual dividend of $1.64, which translates to a 5.75% yield at the current price level. Moreover, the fund’s dividend payouts have increased 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 fund’s NAV was $28.47 as of June 11, 2024.
ANGL’s POWR Ratings reflect solid prospects. The fund has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ANGL has an A grade for Trade and Buy & Hold. Within the B-rated High Yield Bond ETFs group, it is ranked #10 out of 59 ETFs.
To access all ANGL’s POWR Ratings, click here.
ETF #2: SPDR Bloomberg Barclays High Yield Bond ETF (JNK)
JNK seeks to offer investment results that correspond to the price and yield performance of the Bloomberg High Yield Very Liquid Index. It provides a diversified exposure to US dollar-denominated high-yield corporate bonds with above-average liquidity. JNK provides a liquid and more cost-efficient way to access high-yield exposure than individual bonds.
With $8.31 billion in AUM, JNK’s top holdings are State Street Institutional Liquid Reserves Fund with a 0.90% weighting, TIBCO Software Inc. 6.5% 31-MAR-2029 at 0.42%, and Mozart Debt Merger Sub, Inc. 3.875% 01-APR-2029 and Cloud Software Group, Inc. 9.0% 30-SEP-2029 with 0.42% and 0.41% weightings, respectively.
The fund has a total of 1194 holdings, with its top 10 assets comprising 4.37% of its AUM. It has an expense ratio of 0.40%, compared to the category average of 0.43%.
JNK pays an annual dividend of $6.21, which translates to a 6.60% yield at the current price level. Moreover, the fund’s dividend payouts have increased 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 last trading session at $94.18. It has a beta of 0.45. The fund’s NAV was $93.95 as of June 11, 2024.
JNK’s sound 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 grade for Trade and Buy & Hold. Of the 59 ETFs in the High Yield Bond ETFs group, JNK is ranked #3.
Click here to see all the JNK ratings.
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, diversified exposure to core asset classes. The ETF tracks the iBoxx USD Liquid High Yield Index. Its core exposure through the iBoxx index it tracks is solid, covering the most liquid corner of the junk bond market.
The fund has an AUM 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 0.40% weighting each, followed by Cloud Software Group, Inc. 9.0% 30-SEP-2029, and DISH Network Corporation 11.75% 15-NOV-2027 at a 0.39% weighting each, respectively.
HYG has a total of 1260 holdings, with the top 10 assets comprising 3.53% of its AUM. The fund has an expense ratio of 0.49%, higher than the category average of 0.43%. Over the past month, HYG fund inflows came in at $2.26 billion, and $835.19 million over the past three months. Also, it has a beta of 0.43.
HYG pays an annual dividend of $4.58, which translates to a 5.94% yield at the current price level. The fund’s dividend payouts 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 last trading session at $77.06. The fund has a NAV 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 grade for Buy & Hold and Trade. The fund has topped the list of 59 ETFs in the same group.
To access all the POWR Ratings for HYG, click here.
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HYG shares were trading at $77.59 per share on Wednesday morning, up $0.53 (+0.69%). Year-to-date, HYG has gained 2.86%, versus a 14.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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