Year-to-date, IHY has performed almost in line with the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG). HYG is up 5.2% while IHY is higher by 4.8%. The past 90 days tell a different story as IHY is breaking away from its U.S. rival with a gain of 4.9%, double HYG’s returns over the same time frame. [Junk Bond ETFs Love a no Tapering World]
Over the past year, IHY has outpaced HYG by 170 basis points while only being 40 basis points more volatile. IHY’s 30-day SEC yield of 5.17% is about 20 basis points higher than HYG’s.
Those are not the only reasons to consider European high-yield bonds. IHY’s effective duration of 3.57 years is slightly below the 4.06 years found on HYG.
European and emerging markets junk bonds also have lower default rates than U.S. equivalents. From 1981 to 2011, the average default rate on U.S. and tax haven high-yield corporate debt was 3.46%, according to Market Vectors. For Europe and emerging markets junk bonds, the default rates were 1.75% and 1.55%, respectively.
Market Vectors International High Yield Bond ETF