Some of the benefits high-yield ETFs enjoy over similar mutual funds include:
- Similar to the ETF offerings, mutual funds that offer access to high-yield debt also track a select basket of low-grade corporate debt. However, the mutual fund offerings take an active approach while HYG and JNK are designed as passive products.
- Mutual funds rely on the know-how of their managers, which means higher expense ratios. Mutual fund expense ratios can exceed 1.0% and can incur short-term fees for shares held less than 90 days.
- The higher fees also mean that the mutual funds pay out lower yields.
- Mutual funds lack intraday liquidity, transparency and frequently have hefty investment minimums, as well.
When it comes down to total returns, leading high-yield mutual funds have recorded total returns of up to 20% in the past two years, whereas JNK and HYG have provided 12.8% and 11.1%, respectively. Still, HYG and JNK are better for short-term trades because of their transparency, ability to trade throughout the day and lack of short-term trading fees. Mutual funds may be the better choice for long-term investing due to their total return outperformance.
For more information on high-yield bonds, visit our high-yield bonds category.
For full disclosure, Tom Lydon’s clients own shares of JNK.
Max Chen contributed to this article.