Another High Yield, Short Duration ETF to Consider

Many investors typically view credit risk as the primary risk associated with high-yield bonds.

Although 10-year Treasury yields have plunged 18.3% this year, flows data for some marquee junk bond ETFs show investors are also concerned about the specter of rising interest rates and the subsequent impact on high-yield debt.

For example, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) has lost over $2 billion in assets while the PIMCO 0-5 Year High Yield Corporate Bond (NYSEArca: HYS) has pulled in $1.4 billion. The SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK) has added $1.1 billion. [Short Duration Junk ETFs Gain Fans]

HYS and SJNK have durations that average out to about two years while HYG’s duration is closer to four years. Investors can also access low duration, high-yield bonds at the global level with the Powershares Global Short Term High Yield Bond Portfolio (NYSEArca: PGHY).

With an allocation of 44.6% to the U.S., PGHY is suitable for the investor that is looking to skirt highly exotic international junk bonds. Importantly, the ETF delivers as advertised with a 30-day SEC yield of almost 4% and an effective duration of just 1.39 years, according to PowerShares data.

While PGHY is primarily a corporate bond ETF, sovereign debt occupies almost 13% of the fund’s weight. Of the fund’s 165 issues, 76% are rated either BB or B by Standard & Poor’s. [New Junk Bond ETF Deserves More Attention]

In terms of its international allocations, PGHY is not short on controversy as Russia, Brazil and Ukraine combine for 15.6% of the ETF’s weight. Brazil and Russia have both seen their sovereign ratings recently trimmed to BBB-, the lowest investment grade, by S&P.