One of the few drawbacks of the nascent exchange traded fund industry is that there aren’t many options that have accumulated a long performance record to boast about. However, this is slowly changing as the industry grows, with one high-yield junk bond ETF celebrating its 10-year anniversary.
The iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG), which began trading on April 4, 2007, just celebrated its 10th year of trading. This milestone provides 10-years of real time results for financial advisors and institutional investors to look back upon, which may further help the ETF growth and accumulate greater investment interest.
In its decade-long existence, HYG has showed a solid history of outperformance, returning a 5.6% average annualized return over the period. In contrast, the benchmark Bloomberg Barclays US Aggregate Bond Index showed an average annualized return of 4.3% over the past 10 years. Over the past year, HYG also increased 13.3%, compared to the Agg’s 0.4% gain.
The high-yield bond ETF has also more or less mirrored its underlying index over the 10-year period, providing consistent returns to those interested in the speculative-grade debt market.
“Since inception HYG’s annualized performance has been within 4 basis points of its index after fees,” according to iShares. “Its tight tracking stretches over a volatile period that included the 2008 financial crisis, the U.S. Treasury downgrade, European sovereign crisis and the collapse in oil prices.”
Looking ahead, many fixed-income investors are concerned about the Federal Reserve’s rising interest rate outlook, with many expecting at least two more hikes later this year. However, the rising rate environment won’t faze high-yield junk bonds.