Bringing Brevity to Junk Bond ETFs

Rising interest rates coupled with fears of rapidly deteriorating credit quality are among the factors weighing on high-yield corporate bonds and the related exchange traded funds. Adventurous investors with an appetite for credit opportunities can lower rate risk with a slew of ETFs, including the Xtrackers Short Duration High Yield Bond ETF (NYSEArca: SHYL).

The Xtrackers Short Duration High Yield Bond ETF will try to reflect the performance of the Solactive USD High Yield Corporates Total Market 0-5 Year Index, which is comprised of short-term publicly issued U.S. dollar-denominated, below investment-grade corporate debt, according to a prospectus sheet.

A combination of rising interest rates, a healthy injection of government debt into the markets and other external factors has made for a more lively bond market. The sell-offs in October was partly to blame as a confluence of these factors could signal that the environment for fixed-income investors will only get more complex.

SHYL’s underlying bond holdings will have to be from issuers with at least $1 billion outstanding face value, have at least $400 million of outstanding face value, have an original maturity date at most 15 years and have less than or equal to five years to maturity. Furthermore, debt issuer weights are capped at 3%.

Related: Top 56 High Yield Bond ETFs

SHYL ETF Details

SHYL, which debuted in January, holds about 370 bonds. About 96% of the fund’s holdings have maturities of one to three years or three to five years. SHYL’s yield-to-worst is 5.74%.