Junk Bond ETFs: Are They for You? | ETF Trends

Junk bond exchange traded funds (ETFs) have been on a tear this year. If you’ve been thinking about getting some exposure to high-yield debt, read on.

We’re in the midst of a full-blown junk bond bull market. From the market’s low on March 9, 2009 until Oct. 8, 2010, junk bonds have returned a cumulative average of 68%, reports Jeffry Kosnett for Kiplinger. That beats all other fixed-income categories.

High-yield returns have also beaten out investment-grade bond returns in the last three months. The last time that happened was during a five-month winning streak ending in July 2009, says Sapna Maheshwari for Bloomberg.

Junk bond ETFs have served to be an appealing way to get exposure to this market. They give investors a safe place to put their capital while providing yields that are tough to come by these days. [How to Cope With Junk Bond ETF Risk.]

That’s why we own SPDR Barclays Capital High-Yield Bond (NYSEArca: JNK) for our clients.

While junk bonds are riskier than other bond types, a strategy such as trend following can help you manage the risk by providing you with a sell point. If you think the junk bond rally is overheated, think again: you can’t fight the trend and right now, it’s up.

  • iShares iBoxx $ High Yield Corporate Bond (NYSEArca: HYG): yields 7.97%
  • SPDR Barclays Capital High-Yield Bond (NYSEArca: JNK): yields 8.44%
  • PowerShares Fundamental High Yield Corporate Bond (NYSEArca: PHB): yields 6.77%

For full disclosure, Tom Lydon’s clients own JNK.

Tisha Guerrero contributed to this article.

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.