As fixed income investors consider ways to cope in a rising rate environment, some have turned to high-yield bond exchange traded funds to generate income and provide a cushion against pullbacks.
On the upcoming webcast, High Yield Solutions for a Rising Rate Environment, Fran Rodilosso, Head of Fixed Income ETF Portfolio Management at VanEck, will discuss potential income strategies and dive into various approaches for investors to consider during a rising interest rate environment.
For example, the VanEck Vectors Emerging Markets High Yield Bond ETF (NYSEArca: HYEM), which tracks the BofA Merrill Lynch Diversified High Yield US Emerging Markets Corporate Plus Index, holds a number of U.S. dollar-denominated bonds issued by non-sovereign emerging market issuers that are rated below investment grade, offering investors attractive yields. HYEM comes with a 5.55% 30-day SEC yield.
However, potential fixed-income investors should be aware of the risks as well. Given HYEM’s speculative-grade debt focus, the ETF’s credit quality includes junk-rated BB 62.3%, B 28.4% and CCC 7.9%. Moreover, the debt securities are non-sovereign, so they are largely comprised of corporate debt, including financial sector 40.1%, energy 16.4%, industrial 6.8%, basic materials 6.4% and utilities 6.2%, among others.
The high-yield emerging market bond ETF also includes targets the riskier developing economies, including China 13.6%, Brazil 9.7%, Turkey, 9.2%, Russia 8.7% and Argentina 8.6%, among others.
Investors who are interested in high-yield debt but are loath to focus on emerging debt can also look at the VanEck Vectors International High Yield Bond ETF (NYSEArca: IHY), which tracks the BofA Merrill Lynch Global ex-US Issuers High Yield Constrained Index, an index of below investment grade corporate bonds issued by non-U.S. corporations in the major domestic or Eurobond markets. IHY has a 3.84% 30-day SEC yield.
Similarly, IHY is exposed to speculative-grade-rated debt, including BB 69.5%, B 24.6% and CCC 5.6%.
However, IHY largely includes European debt securities, along with a smattering of other international issuers, including U.K. 13.2%, Brazil 9.2%, Italy 8.1%, Canada 6.8%, China 6.7%, Russia 6.4%, Luxembourg 6.4%, France 5.3%, Germany 4.2% and Netherlands 3.4%.
Financial advisors who are interested in learning more about the fixed income market can register for the Thursday, May 11 webcast here.