In fact, the ETF business has been rolling out high-yield funds that have built-in hedges against the risk of rising interest rates. These newfangled products include ProShares High Yield-Interest Rate Hedged (BATS: HYHG), Market Vectors Treasury-Hedged High Yield Bond ETF (NYSEArca: THHY) and First Trust High Yield Long/Short ETF (NasdaqGM: HYLS). [New High-Yield Bond ETF]
Also, Guggenheim Investments manages so-called defined-maturity ETFs for high-yield bonds that are geared to reduce interest-rate risk. The funds include Guggenheim BulletShares 2015 High Yield Corporate Bond ETF (NYSEArca: BSJF) and Guggenheim BulletShares 2014 High Yield Corporate Bond ETF (NYSEArca: BSJE).
The Guggenheim ETFs are designed to mature like individual bonds.
“These funds primarily buy bonds maturing in the year the funds will terminate, so that the funds can collect the bonds’ face value at maturity and pass the cash along to investors,” Tom Lauricella reported in a WSJ article earlier this month. “With other bond funds, investors risk getting back a lot less than their original cost if interest rates rise, because that pushes bonds’ market prices down.” [Defined-Maturity ETFs]
SPDR Barclays Short-Term High-Yield Bond ETF
Full disclosure: Tom Lydon’s clients own HYG and JNK.