For example, in 2008 when the wheels came off the economy and junk-bond market, HYG lost 17.4% for the year while JNK tumbled 25.7%, according to Morningstar. When the market recovered in 2009, HYG gained 28.5% while JNK rose 39.3%.
HYG has a relatively larger allocation to corporate bonds that are rated BBB or better. JNK holds more bonds that are CCC or lower. However, again, the credit-quality difference between the two ETFs isn’t dramatic.
Morningstar analyst Timothy Strauts in March 4 reports on both ETFs notes that the average credit quality of the constituents of both funds’ benchmark is B. In terms of average duration, a measure of interest-rate sensitivity, JNK is 4.2 years and HYG is 3.9 years.
In the past, disruptions in the bond markets have caused both ETFs “to trade at significant premiums and discounts to its net asset value,” Strauts cautions. Investors should be on the lookout for these premium or discounts to NAV before purchasing the funds, he adds.
There are some interesting sector distinctions. JNK has 87.5% in industrials, while HYG is more diversified in terms of sector allocations. [High-Yield Bond ETFs: Too Risky After Big Rally?]
For more information on speculative grade debt, visit our junk bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own HYG and JNK.