High-Yield Bond ETFs Come with Risks | ETF Trends

Investors have been funneling money into exchange traded funds that provide exposure to high-yield corporate bonds. Junk bonds offer higher yields, but investors need to remember they’re being compensated for taking on more risk by moving into lower-quality debt.

High-yield ETFs have rebounded smartly along with U.S. stocks since the October 2011 market bottom, and defaults remain low.

Junk bond mutual funds and ETFs recently saw their first outflows following 18 straight weeks of inflows. [Investors Cool on High-Yield Bond ETFs]

The largest ETFs in the category include iShares iBoxx High Yield Fund (NYSEArca: HYG), SPDR Barclays High Yield Bond (NYSEArca: JNK), PowerShares High Yield Corporate (NYSEArca: PHB) and PIMCO 0-5 Year High Yield Corporate Bond (NYSEArca: HYS).

The iShares fund is yielding about 7%.

“Clients are essentially trying to replace the income they used to get from their government bonds,” said Hans Olsen, head of investment strategy in the Americas for Barclays Wealth, in a recent Bloomberg report.