Did Investors Just Flip the Risk Switch Back On?

The Dow Jones Industrial Average has been climbing this week despite the escalation of trade wars, which showed that investors may just be getting a bit weary of tariff battles and are diving back into the markets again. Is this renewed confidence allowing them to flip the risk switch back on and head back into riskier assets like high yield?

One of the most active exchange-traded funds (ETFs) on Wednesday was the iShares iBoxx $ High Yield Corporate Bond ETF (HYG). The fund seeks to track the investment results of the Markit iBoxx® USD Liquid High Yield Index, which is a rules-based index consisting of liquid, U.S. dollar-denominated, high yield corporate bonds for sale in the United States.

Did Investors Just Flip the Risk Switch Back On? 1

According to Scott Clemons, chief investment strategist at Brown Brothers Harriman, investors crave three things when it comes to fixed income assets: liquidity, stability and income–they can’t have all three.

“In this kind of interest-rate environment,” said Clemons. “Those benefits are fragmented. So you, as an investor, have to decide. If it’s all about yield, you’re going to have to give up some stability, maybe some liquidity. But if it’s all about stability and liquidity, there’s not a lot of yield attached to that.”

That said, what are the exchange-traded funds (ETFs) that investors can look at to appease their appetite for high yield? One place to start is the best-performing funds year-to-date (YTD).

Other High Yield Options

A few other high yield options to consider:

1. iShares U.S. Fallen Angels USD Bond ETF (NYSEArca: FALN) – Up 9.42%: seeks to track the investment results of the Bloomberg Barclays US High Yield Fallen Angel 3% Capped Index composed of U.S. dollar-denominated, high yield corporate bonds that were previously rated investment grade. The fund generally will invest at least 90% of its assets in the component securities of the index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The index is designed to reflect the performance of U.S. dollar denominated, high yield corporate bonds that were previously rated investment grade.

2. VanEck Vector Fallen Angel High Yield Bond ETF (NYSEArca: ANGL) – Up 9.19%: seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE BofAML US Fallen Angel High Yield Index (the “Fallen Angel Index”). The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The index is comprised of below investment grade corporate bonds denominated in U.S. dollars that were rated investment grade at the time of issuance.

3. FlexShares High Yield Value-Scored Bond Index Fund (NYSEArca: HYGV) – Up 9.11%: seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust High Yield Value-Scored US Corporate Bond IndexSM (the underlying index). The fund generally will invest at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of its underlying index. The underlying index reflects the performance of a broad universe of U.S.-dollar denominated high yield corporate bonds that seeks a higher yield than the overall high yield corporate bond market, as represented by the Northern Trust High Yield US Corporate Bond IndexSM.

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