10 U.S. High yield bond ETFs to watch in 2023

Top 10 bond ETFs with high yield from the U.S.

*The list of funds mentioned is ranked by assets under management.

Data as of 12 June 2023. Source: Google Finance

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Discover these U.S. high yield bond ETFs

1. iShares iBoxx $ High Yield Corporate Bond ETF ($HYG)

Assets under management (AUM): US$16.76b

Stock price (as of 12/06/2023): US$74.72

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): 64% / 36%

The $HYG ETF is one of the largest and most widely traded high-yield bond ETFs. The fund aims to track the performance of the iBoxx USD Liquid High Yield Index. The fund primarily invests in U.S. dollar-denominated, high-yield corporate bonds issued by companies with below-investment-grade credit ratings. These bonds typically offer higher yields to compensate for the increased credit risk associated with these companies.

$HYG provides investors with exposure to a diversified portfolio of high-yield bonds across various sectors such as telecommunications, energy, consumer discretionary, and financials. The ETF's holdings may include both fixed and floating-rate bonds, offering a mix of interest rate exposure. It is important to note that while $HYG focuses on the high-yield segment of the bond market, it does not invest in the riskiest "junk" bonds, as it applies certain selection criteria to its holdings.

🆚 Compare HYG vs JNK stock comparison→

2. iShares Broad USD High Yield Corporate Bond ETF ($USHY)

Assets under management (AUM): US$8.92b

Stock price (as of 12/06/2023): US$87.51

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): Not available

The $USHY ETF is designed to track the performance of the ICE BofA Broad US High Yield Index. It offers investors exposure to a broad range of U.S. dollar-denominated, high-yield corporate bonds. The fund aims to capture the performance of the broader high-yield bond market, including both investment-grade and below-investment-grade bonds. However, the overall credit quality of the $USHY's holdings is slightly lower than that of its counterpart, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG).

$USHY's holdings encompass a diverse range of sectors such as financials, industrials, materials, and more. The ETF aims to provide investors with access to a larger set of high-yield bonds, allowing for increased diversification within portfolios in the high-yield segment of the bond market. This broader exposure may appeal to investors seeking a balanced approach to high-yield investments.

🆚 Compare USHY vs HYG stock comparison→

3. SPDR Bloomberg High Yield Bond ETF ($JNK)

Assets under management (AUM): US$8.22b

Stock price (as of 12/06/2023): US$91.60

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): Not available

The $JNK ETF seeks to track the performance of the Bloomberg Barclays High Yield Very Liquid Index. It invests in U.S. dollar-denominated, below-investment-grade corporate bonds, commonly referred to as "junk bonds." $JNK is one of the largest and most widely traded high-yield bond ETF available. It offers investors exposure to a diverse portfolio of high-yield bonds issued by companies in various sectors such as consumer services, industrials, and financials.

$JNK's holdings primarily consist of fixed-rate bonds, but the ETF may also include floating-rate bonds to provide a mix of interest rate exposures. The fund's objective is to capture the performance of the U.S. high-yield bond market while maintaining liquidity and transparency for investors.

Investors often consider $JNK as part of their fixed-income allocation for potential income generation and diversification. The high-yield bonds held by $JNK generally offer higher yields compared to investment-grade bonds to compensate for the increased economic and credit risk often associated with below-investment-grade companies.

💡Related: U.S. bond ETFs: Top 10 to watch→

4. iShares 0-5 Year High Yield Corporate Bond ETF ($SHYG)

Assets under management (AUM): US$5.26b

Stock price (as of 12/06/2023): US$41.25

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): Not available

The $SHYG ETF focuses on short-term, U.S. dollar-denominated, high-yield corporate bonds with maturities of five years or less. It seeks to track the performance of the Markit iBoxx USD Liquid High Yield 0-5 Index. By targeting shorter maturities, $SHYG aims to provide investors with exposure to high-yield bonds while managing interest rate risk. The fund invests mainly in bonds issued by companies in sectors such as consumer discretionary, energy, and telecommunications.

As a short-term high-yield bond ETF, $SHYG offers several potential benefits for investors. First, it aims to reduce interest rate risk compared to longer-term high-yield bond ETFs. Shorter maturities generally make bond prices less sensitive to changes in interest rates. Second, the ETF provides investors with the potential for attractive income generation due to the higher yields typically offered by high-yield bonds. Lastly, $SHYG's focus on short-term bonds may provide increased liquidity, allowing for easier trading and potential price stability.

Investors often consider $SHYG as part of their fixed-income allocation for income generation and diversification. The ETF's holdings include both fixed and floating-rate bonds, providing a mix of interest rate exposures. However, it is important to note that high-yield bonds carry a higher level of credit risk compared to investment-grade bonds, as they are issued by companies with lower credit ratings.

5. SPDR Blackstone Senior Loan ETF ($SRLN)

Assets under management (AUM): US$4.38b

Stock price (as of 12/06/2023): US$41.28

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): Not available

The $SRLN ETF provides investors with exposure to senior secured loans, also known as bank loans or leveraged loans. It seeks to track the performance of the S&P/LSTA U.S. Leveraged Loan 100 Index. Senior loans are loans made to below-investment-grade companies that have higher priority in the event of default compared to other forms of debt. They typically have floating interest rates that adjust periodically based on a reference rate, such as LIBOR.

$SRLN's focus on senior loans offers several potential benefits. First, senior loans generally have lower default rates compared to traditional high-yield bonds. This is because they are backed by collateral and have higher priority in the event of bankruptcy or default. Second, the floating-rate nature of senior loans can provide protection against rising interest rates as their coupon payments adjust with changes in the reference rate. This feature makes $SRLN attractive to investors seeking potential income and a hedge against interest rate risk.

🆚 Compare SRLN vs BKLN stock comparison→

6. Invesco Senior Loan ETF ($BKLN)

Assets under management (AUM): US$3.84b

Stock price (as of 12/06/2023): US$20.84

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): Not available

The $BKLN ETF focuses on senior secured loans, also known as bank loans or leveraged loans. It seeks to track the performance of the S&P/LSTA U.S. Leveraged Loan 100 Index.

$BKLN provides investors with exposure to a diversified portfolio of senior loans issued by below-investment-grade companies across various industries. This diversification helps mitigate company-specific risk and sector concentration. The ETF aims to capture the performance of the senior loan market while managing interest rate risk.

One of the key attractions of $BKLN is its potential to offer income generation while managing interest rate sensitivity. Since senior loans have floating interest rates, they generally offer higher yields compared to traditional fixed-rate bonds. This can be particularly beneficial in a rising interest rate environment. Additionally, the ETF's underlying index, the S&P/LSTA U.S. Leveraged Loan 100 Index, is a widely recognised benchmark for the senior loan market, enhancing the credibility of $BKLN as a senior loan investment option.

7. Xtrackers USD High Yield Corporate Bond ETF ($HYLB)

Assets under management (AUM): US$3.75b

Stock price (as of 12/06/2023): US$34.30

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): Not available

The $HYLB ETF seeks to track the performance of the Solactive USD High Yield Corporates Total Market Index. It offers investors exposure to U.S. dollar-denominated, high-yield corporate bonds. The fund's objective is to provide efficient and cost-effective access to the high-yield bond market. $HYLB primarily invests in below-investment-grade bonds issued by companies across various sectors such as energy, telecommunications, and consumer discretionary.

One of the key features of $HYLB is its focus on bonds with shorter maturities. The ETF aims to provide exposure to high-yield corporate bonds with remaining maturities between one and five years. By targeting shorter maturities, $HYLB seeks to mitigate interest rate risk and provide potential stability in changing interest rate environments. This feature may be appealing to investors who prefer a shorter duration exposure to high-yield bonds.

8. SPDR Bloomberg Short Term High Yield Bond ETF ($SJNK)

Assets under management (AUM): US$3.65b

Stock price (as of 12/06/2023): US$24.57

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): Not available

The $SJNK ETF focuses on short-term, U.S. dollar-denominated, high-yield corporate bonds. It seeks to track the performance of the Bloomberg Barclays US High Yield 350mn Cash Pay 0-5 Yr 2% Capped Index. The fund's objective is to provide investors with exposure to the short-term segment of the high-yield bond market while managing interest rate risk. $SJNK primarily invests in bonds with remaining maturities of five years or less issued by below-investment-grade companies across various sectors.

One of the key features of $SJNK is its focus on bonds with shorter maturities, which helps mitigate interest rate risk. Shorter-term bonds are generally less sensitive to changes in interest rates compared to longer-term bonds. By targeting the short-term segment of the high-yield bond market, $SJNK seeks to provide potential stability and lower duration exposure to investors.

9. VanEck Fallen Angel High Yield Bond ETF ($ANGL)

Assets under management (AUM): US$2.50b

Stock price (as of 12/06/2023): US$27.49

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): Not available

The $ANGL ETF focuses on fallen angel bonds, which are corporate bonds that were initially issued with investment-grade ratings but have been downgraded to below-investment-grade status. The fund seeks to track the performance of the ICE BofA Fallen Angel High Yield Index. $ANGL provides investors with exposure to a unique segment of the high-yield bond market, targeting bonds that may offer potential opportunities for both income generation and capital appreciation.

Fallen angel bonds have the potential to offer attractive risk-reward characteristics. When a bond is downgraded from investment grade to below investment grade, it often faces selling pressure from investors who can no longer hold it due to their investment mandates. This selling pressure can create pricing inefficiencies, potentially leading to opportunities for investors who are willing to take on the credit risk associated with these fallen angels.

$ANGL's portfolio comprises bonds issued by companies in various sectors, including financials, industrials, and energy. The ETF's focus on fallen angels aims to capture potential upside potential as companies work to improve their financial positions and regain investment-grade status.

10. First Trust Senior Loan Fund ($FTSL)

Assets under management (AUM): US$2.21b

Stock price (as of 12/06/2023): US$45.12

Stake Platform Bought / Sold (1 Jan 2023 - 12 Jun 2023): Not available

The $FTSL ETF focuses on senior secured loans, also known as bank loans or leveraged loans. It seeks to provide investors with exposure to the U.S. dollar-denominated senior loan market. The fund's objective is to track the performance of the Markit iBoxx USD Liquid Leveraged Loan Index. $FTSL primarily invests in below-investment-grade senior loans issued by companies across various sectors such as healthcare, technology, and consumer services.

The floating-rate nature of senior loans can provide protection against rising interest rates, making $FTSL attractive to investors seeking potential income and a hedge against interest rate risk.

The ETF's underlying index, the Markit iBoxx USD Liquid Leveraged Loan Index, represents a diversified basket of senior loans issued by below-investment-grade companies. This diversification helps to mitigate company-specific risk and sector concentration. Additionally, $FTSL aims to provide a relatively low duration exposure to the senior loan market, which can potentially offer stability and reduced interest rate sensitivity.

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Are high yield bond ETFs a good investment?

High yield bond exchange traded funds can be a suitable investment for certain investors, but it's important to understand the associated risks and consider individual investment goals and risk tolerance. High yield bond ETFs typically offer higher yields compared to investment-grade bonds, which can be attractive for investors seeking income generation and higher returns. However, it's important to remember that higher yields come with increased credit risk and to not be fooled by price and yield performance alone.

High yield bonds are issued by companies with lower credit ratings, indicating a higher likelihood of default. These bonds are considered riskier investments compared to investment-grade bonds. Credit risk is a crucial factor to consider as it can impact the value and performance of high yield bond funds. Additionally, high yield bonds can be susceptible to interest rate risk. When interest rates rise, the prices of existing bonds tend to fall, impacting the value of the ETF.

However, some bond ETFs, such as those focusing on shorter maturities or floating-rate bonds, may help mitigate interest rate risk to some extent. ETFs offer diversification benefits by investing in a portfolio of bonds, which can help reduce the impact of individual bond defaults.

The performance of high yield bond exchange traded funds is influenced by economic conditions and market sentiment. Factors such as the overall health of the economy, default rates, and market liquidity can impact the performance of these ETFs. It's important to carefully evaluate the credit quality of the underlying bonds and understand the risks involved to determine whether high yield bond ETFs align with an investor's objectives and risk profile.

🎓 Learn more: What are government bonds?→

What is the best performing U.S. high yield bond ETF?

The best performing U.S. high yield U.S. bond of the last five years, three years and 12 months, respectively, are:

• $FALN (iShares Fallen Angels USD Bond ETF): $FALN had the best performance over the last 5 years, with a return of +3.99%. This ETF focuses on fallen angel bonds. $FALN captures potential opportunities in this segment of the high-yield bond market.
• $HYZD (WisdomTree Interest Rate Hedged High Yield Bond Fund): $HYZD had the best performance over the last 3 years, with a return of +4.96%. This ETF seeks to provide exposure to U.S. dollar-denominated high yield bonds while hedging against interest rate risk. By employing an interest rate hedging strategy, $HYZD aims to mitigate the impact of rising interest rates on its portfolio.
• $HYGH (iShares Interest Rate Hedged High Yield Bond ETF): $HYGH had the best performance in the last 12 months, with a return of +6.28%. Similar to $HYZD, this ETF focuses on U.S. high yield bonds while employing an interest rate hedging strategy.

It's important to note that past performance does not guarantee future results, and the performance of these ETFs can be influenced by various factors, including changes in credit markets, interest rates, and overall economic conditions. Investors should carefully review the prospectus and consider their investment goals, risk tolerance, and time horizon before making any investment decisions.

Is there an emerging market high yield bond ETF?

Yes, there are multiple emerging market high yield bond ETFs available.

These ETFs focus on investing in high yield bonds issued by companies in emerging market economies. Here are a few examples of emerging market high yield bonds:

• $EMB: The iShares J.P. Morgan USD Emerging Markets Bond ETF seeks to track the performance of the J.P. Morgan EMBI Global Core Index. It invests in U.S. dollar-denominated emerging market sovereign and quasi-sovereign bonds.
• $PCY: The Invesco Emerging Markets Sovereign Debt ETF aims to track the performance of the DBIQ Emerging Market USD Liquid Balanced Index. It invests in U.S. dollar-denominated emerging market sovereign bonds.
• $EMHY: The iShares Emerging Markets High Yield Bond focuses specifically on high yield bonds issued by emerging market companies. It seeks to track the performance of the Morningstar Emerging Markets High Yield Bond Index.

These ETFs provide investors with exposure to the high yield bond market in emerging economies, offering potential opportunities for income generation. However, it's important to consider the risks associated with investing in emerging market bonds, such as currency risk, political risk, and economic volatility. Investors should carefully evaluate their risk tolerance and conduct thorough research before investing in emerging market high yield bond ETFs or any other investment vehicle.

This does not constitute financial product advice nor a recommendation to invest in the securities listed. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking appropriate financial or taxation advice before investing.