Duration is seen as a weighted average time in years for an investor to receive cash flow and also seen as a gauge of interest rate sensitivity. Bond funds with higher duration would have a greater sensitivity to changes in rates, whereas low duration funds have a smaller sensitivity to rate hikes.
In the fixed-income market, bond ETFs have been a very disruptive force that has allowed anyone to quickly and easily access exposure to debt securities. According to a recent Greenwich Associates survey, the three most popular reason for utilizing high-yield bond ETFs were low trading costs, operational simplicity and speed of execution.
Most bond ETFs passively and closely track an underlying index, trades on a stock exchange with reasonable spreads and allows investors to easily and cost efficiently access a broad index of debt securities.
For example, the recently launched Deutsche X-trackers USD High Yield Corporate Bond ETF (NYSEArca: HYLB) will try to reflect the performance of the newly launched Solactive USD High Yield Corporate Total Market Index, a market value weighted benchmark designed to mirror the performance of high yield corporate bonds issued in U.S. dollars.
For more information on the high-yield bond market, visit our high-yield bonds category.