Additionally, advisors suggest coupling the riskier junk bonds with investment-grade debt to help smooth out the volatility. For instance, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) was only down 0.3% from the June 25 peak to the August 1 trough, whereas both JNK and HYG both dipped 3.5%. [High-Quality Corporate Bond ETFs Show Double-Digit Annual Returns]
Fixed-income assets will be negatively affected by a rising rate environment, but these funds have performing as rates declined this year. Additionally, corporate debt has been less vulnerable to rate spikes than U.S. Treasuries.
“Treasurys are most susceptible to price hits when rates rise,” Jeff Layman, chief investment officer at BKD Advisors, said in the article. “It’s unwise to buy Treasurys, even though the 10-year note has fallen in yield from about 3% to 2.4% this year. I don’t think this move is likely to repeat itself.”
Alternatively, investors can also consider a broad, all-in-one bond ETF for a simple way to gain diversified exposure to fixed-income assets. For instance, the Vanguard Total Bond Market ETF (NYSEArca: BND) includes 41.2% U.S. Treasuries, 20.0% corporate debt and 20.2% agency MBS pass-through debt. [Bolster Fixed-Income Positions With Corporate Debt ETFs]
For more information on speculative-grade debt, visit our junk bonds category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of HYG, JNK and LQD.