The Vanguard Short-Term Bond ETF (NYSEArca: BSV), one of this year’s most prolific asset gatherers among bond ETFs because of its low duration, has yields not much more than 1%.
The iShares TIPS Bond ETF (NYSEArca: TIP) has a 30-day SEC yield of just 1.45%. Sure, the 3.45% 30-day SEC yield found on the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) sounds good by comparison, but risk-tolerant investors can find even higher yields in the bond ETF arena.
That is assuming they are willing to take on some added risk, but with U.S. interest rates expected to rise if the Federal Reserve tapers, the real risk might just be holding Treasury ETFs with exposure to the wrong end of the yield curve.
What follows is a list of bond ETFs that have 30-day SEC yields north of 5%. Durations are included as well as comments illustrating what investors can expect with these ETFs. Only pure bond funds are included. That means no ETFs with “bond-like” traits such as REIT, MLP, preferred stock or business development funds.
Please note these are not all of the bond ETFs currently yielding 5% or more, but the list does represent a variety of high-yielding bond themes starting with the…
SPDR Barclays High Yield Bond ETF (NYSEArca: JNK)
30-day SEC Yield: 5.24%
Modified Adjusted Duration: 4.4 years
Comment: With almost $9.9 billion in assets under management, JNK is the second-largest U.S. junk bond ETF behind HYG. HYG and JNK have been written off countless times this year, but JNK is higher over the past month and three months. Since the start of October, JNK has raked in over $572 million in assets.
SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSEArca: HYMB)
30-Day SEC Yield: 5.27%
Modified Adjusted Duration: 10 years
Comment: The same factors that have hampered the Market Vectors High-Yield Municipal ETF (NYSEArca: HYD) this year have plagued HYMB. Investors should note these two muni ETFs are vastly different in terms of composition. For example, Texas and California munis combine for just 15.1% of HYD’s weight. California alone is 18.2% of HYMB’s weight.
Market Vectors LatAm Aggregate Bond ETF (NYSEArca: BONO)
30-Day SEC Yield: 5.4%
Effective Duration: 5.14 years
Comment: BONO will not be BONO for long. It is expected that the ETF’s ticker will change to EMAG next month and the fund will move to an index that provides investors exposure to dollar- and euro-denominated emerging markets corporates, dollar- and euro-denominated sovereigns as well as local currency sovereigns and corporates.
Market Vectors International High Yield Bond ETF (NYSEArca: IHY)
30-Day SEC Yield: 5.39%
Effective Duration: 3.66 years
Comment: Consider IHY as the developed market equivalent of HYEM or the ex-U.S. answer to an ETF like HYG. Like emerging markets junk corporates, the developed markets, non-U.S. equivalents have lower default rates than U.S. high-yield corporates. IHY has performed inline with HYG and has outperformed its larger rival in the past 90 days. [European Junk Bonds Spell Opportunity With This ETF]
iShares B – Ca Rated Corporate Bond ETF (NYSEArca: QLTC)
30-Day SEC Yield: 5.41%
Effective Duration: 3.84 years
Comment: Slicing and dicing the junk bond universe into eight specific credit ratings may seem like a hyper-focused approach to building an ETF, but QLTC is not without its merits. Specifically, QLTC has a higher 30-day SEC yield, lower duration and has outpaced the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) this year.
PowerShares Fundamental Emerging Markets Local Debt Portfolio (NYSEArca: PFEM)
30-Day SEC Yield: 6.38%
Effective Duration: 5.43 years
Comment: Amid tapering talk and the subsequent rise in U.S. interest rates, local currency emerging markets bond ETFs were punished earlier this year. Insolation from price retrenchment in local currency emerging world debt is hard to come by these days, but PFEM is not a high credit risk fund. To be included in the new ETF, a bond must be rated at least CC, but 84% of the fund’s 33 holdings are rated AA, A or BBB.
Market Vectors High Yield Municipal Index ETF (NYSEArca: HYD)
30-Day SEC Yield: 5.91%
Effective Duration: 11 years
Comment: Municipal bonds have been a favored destination for conservative income investors for years, but some of the air has come out of that trade this year due to rising interest rates and concerns about the higher rate of municipal defaults. Earlier this year, BlackRock said that investors should avoid longer-maturity bonds and trade lower-rated debt for securities with higher grades. HYD has not recovered from its tapering-induced tumble and trades only modestly higher today than where it did in late June. [BlackRock Cautious on Muni Bond ETFs]
iShares Emerging Markets High Yield Bond ETF (NYSEArca: EMHY)
30-Day SEC Yield: 6.28%
Effective Duration: 5.66 years
Comment: EMHY holds mostly sovereign debt with some quasi sovereigns sprinkled in. Interestingly, many of the ETF’s largest country weights have investment-grade credit ratings. Turkey, Russia and China combine for over 22% of EMHY’s weight and all three have investment-grade ratings. The wildcard in this ETF is Venezuela, which accounts for 13.2%. EMHY has one of the largest ETF allocations to that country, which has a penchant for currency devaluations.
Market Vectors Emerging Markets High Yield Bond ETF (NYSEArca: HYEM)
30-Day SEC Yield: 6.94%
Effective Duration: 4.04 years
Comment: HYEM was one of the first ETFs to focus exclusively on the non-sovereign, junk area of the emerging markets debt universe. Investors have bought into the concept, having poured almost $244 million into the ETF. High-yield emerging markets corporates have higher yields than their sovereign and U.S. junk counterparts and lower default rates than U.S. non-investment grade corporates. [An EM Junk Bond ETF Crushes Treasuries]
AdvisorShares Peritus High Yield ETF (NYSEArca: HYLD)
30-Day SEC Yield: 7.57%
Duration: 3 years
Comment: The AdvisorShares Peritus High Yield ETF is one of the more successful actively managed ETFs. Over $429.4 million in assets under management affirms as much. HYLD stood tall relative to passively managed U.S. junk bond ETFs when rates spiked earlier this year and it is easy to explain why. HYLD’s duration of three years is nearly a full year below the Barclays U.S. High Yield Index with a coupon that is 160 basis points above that index. [Actively Managed Junk Bond ETF Proves Durable as Rates Rise]
ETF Trends editorial team contributed to this slide show. Tom Lydon’s clients own shares of HYD, HYG, JNK, LQD and EMHY.