Bond market observers widely expect the Federal Reserve to boost borrowing costs at its September and December meetings. That could make many fixed income investors pensive about high-yield corporate debt and the corresponding exchange traded funds.
The SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK) is an alternative to consider if rates rise because SJNK offers income investors a lower duration avenue to high-yield corporates without a significant sacrifice in terms of yield.
SJNK seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays US High Yield 350mn Cash Pay 0-5 Yr 2% Capped Index. SJNK invests its total assets in the securities comprising the index, which is designed to measure the performance of short-term publicly issued U.S. dollar-denominated high yield corporate bonds.
Lower Rate Risk
SJNK has an option-adjusted duration of just 2.33 years, which is below the comparable metric on traditional junk bond ETFs. The fund, which holds over 700 bonds, has an average yield to worst of 5.88%.
SJNK allocates about 81% of its combined weight to bonds rate BB or B, but the ETF also features exposure to CCC-rated debt. Bonds rated CCC and lower are generally considered highly speculative and that group accounts for almost 18% of SJNK’s roster.