While bank loans are senior and secured, high-yield bonds tend to have better call protection and trade more actively in the secondary market.  Bonds also settle on a T+3 basis versus an average of two to four weeks for loan assignments to take place.  High-yield ETFs have held significant assets through various market cycles, including periods of heavy outflows; bank loan ETFs are yet to be tested for liquidity on a similar scale.

A Treasury-hedged high-yield approach may offer investors the opportunity to isolate credit risk and the return and income potential of high yield bonds, while at the same time reducing interest rate risk.

 

Fran Rodilosso is co-portfolio manager of the Market Vectors Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHY).  Launched in March 2013, it was the first U.S. passively managed ETF of its kind.

1Duration measures a bond’s sensitivity to interest rate changes that reflects the change in a bond’s price given a change in yield.

2Hedged-high-yield bonds are represented by the Market Vectors US Treasury-Hedged High Yield Bond Index, which outperformed bank loan strategies, as represented by the S&P/LSTA U.S. Leveraged Loan 100 Index, since the former’s inception date of February 5, 2013.  Current fund information can be found at marketvectorsetfs.com.

Please note that the information herein represents the opinion of the portfolio manager and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. ©2014 Van Eck Global