Fixed-income observers have grown increasingly wary of energy and materials sector debt as the commodities market plunged over the past year. Many are concerned that we will witness greater defaults among energy producers as oil prices remain stubbornly low. Meanwhile, miners are also in a precarious situation after demand for industrial metals, notably from China, declined as the global economy weakened.
In contrast, broad index-based junk bond ETFs include greater weights toward these riskier segments. For instance, HYG holds 10.6% in energy company debt.
However, potential investors should be aware that due to HYLS’s active management and use of short sales, the fund comes with a high 1.29% expense ratio.
For more information on the speculative-grade debt market, visit our junk bonds category.
Max Chen contributed to this article.