Finding a High-Yield Haven in a Tumultuous Environment

By Todd Shriber via

These are trying times for high-yield corporate bonds and rapidly declining oil prices are, once again, a big reason why. In a tumble that started in late October, spanning into the first half of November, oil notched its longest losing streak in 34 years, pressuring speculative-grade corporate bonds along the way.

Oil’s burden on passively managed high-yield bond strategies is easy to understand. The Markit iBoxx USD Liquid High Yield Index and the Bloomberg Barclays High Yield Very Liquid Index allocate about 15 percent of their respective weights to high-yield energy debt.

“American energy companies have been the biggest issuers of high-yield bonds since 2015, according to Dealogic, and their bonds account for about 15 percent of the market,” reports The New York Times. “As the price of crude falls, investors’ concerns about the health of these companies and their ability to pay off the bonds grows.”

An actively managed strategy, such as the JPMorgan Disciplined High Yield ETF (JPHY), can help investors avoid some of the pitfalls associated with passive junk bond funds. A cornerstone of the JPMorgan Disciplined High Yield ETF’s (JPHY) strategy is excluding those bonds that do not exhibit favorable risk/reward characteristics.

JPHY, which debuted just over two years ago as the first fixed income ETF in the JPMorgan Asset Management (JPAM) stable, has been a steady performer since inception. During its just over 26 months on the market, JPHY outperformed a widely followed gauge of investment-grade corporate bonds. The fund also underscores the notion that high-yield bonds can respond positively to rising interest rates as evidenced by JPHY’s significant out-performance of long-dated Treasuries.

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