Active vs. Passive With Bond ETFs

“Meanwhile, only 14% of high yield funds outperformed the Barclays High Yield index over three years and only 15% did so looking back five years. Considering the average high yield mutual fund has a hefty1.14% expense ratio that eats into returns, this should not be too surprising,” according to S&P Capital IQ.

The research firm has an overweight rating on the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK). JNK, the second-largest junk bond ETF by assets, charges just 0.4% per year.

In June, the spread between B-rated bonds and Treasuries tightened to 320 basis points, or 200 basis points below its 25-year average. Now, the spread has widened back to about 430 basis points. After the recent selling, bond yields have inched higher – bond prices and yields have an inverse relationship.

SPDR Barclays Long Term Treasury ETF

 

Tom Lydon’s clients own shares of JNK.