The first "junk" bond exchange traded fund (ETF) that hit the market in April ignited immediate interest among investors. iShares iBoxx $ High Yield Corporate Bond ETF (HYG) contains 50 bonds that are highly liquid and tend to be highly rated within the junk bond sector. In many instances, high yield indexes tend to hold lower rated bonds that might be near default.
One of the biggest challenges HYG faces is that ETFs are notoriously liquid, and high yield bonds are known for their illiquidity. In hopes of a solution, HYG "is designed to be a liquid measure that reflects the broader high-yield universe, with weights in industries that roughly approximate the weightings in the overall marketplace," says James Picerno of Capital Spectator.
As the first of its kind and a high-risk investment, HYG is definitely one to watch as it may spur more rivals. If you’re thinking of investing in this ETF, understand its makeup and know you can handle the risk.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.