The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is an investment vehicle that seeks to track the investment results of an index composed of U.S. dollar-denominated, high yield corporate bonds called The Markit iBoxx USD Liquid High Yield Capped Index. The Markit iBoxx USD Liquid High Yield Capped Index consists of liquid USD high yield bonds, selected to provide a balanced representation of the broad USD high yield corporate bond universe.

Bonds and interest rates have an inverse relationship; so when one goes up, the other goes down. Interest rates have been historically low for many years, making the gold standard investment choice for most individuals, U.S. Treasuries, much less attractive at this point.

However, investment-grade corporate bonds are an alternative to the more traditional U.S. Treasury Bonds. Corporate bonds offer significantly higher yields in many cases, without an equally hefty amount of risk. Of course there is still some risk, as corporations do go bankrupt on rare occasions. But investment-grade bonds typically target companies with excellent credit ratings and very low risk of default, in order to minimize risk.

The index focuses on the inclusion of fixed coupon bonds, step-up bonds with coupon schedules known at issuance (or as functions of the issuer’s rating), bonds with sinking funds, medium term notes (MTNs), Rule 144A offerings, callable and putable bonds are candidates for inclusion. Meanwhile the index excludes preferred shares, convertible bonds, bonds with other equity features attached (e.g., options/warrants), perpetual bonds, floating rate notes, pay-in kind bonds, which typically carry higher risk.

All bonds need to have an average rating of sub-investment grade bonds as well. Ratings from Fitch Ratings, Moody’s Investor Service and Standard & Poor’s Rating Services are considered in making this decision. If more than one agency provides a rating, the average rating is attached to the bond.

The  iShares iBoxx $ High Yid Corp Bond ETF has current assets of over $15 billion, an expense ratio of 0.49%, and has 979 current holdings.

Some of the ETF’s top holdings include: ALTICE FRANCE SA, SPRINT CORP, TRANSDIGM INC, BAUSCH HEALTH COMPANIES INC, CCO HOLDINGS LLC, CHS/COMMUNITY HEALTH SYSTEMS INC, ALTICE LUXEMBOURG SA, TENET HEALTHCARE CORP, INTELSAT JACKSON HOLDINGS SA, TEVA PHARMACEUTICAL FINANCE NETHERLANDS III BV, 1011778 BC UNLIMITED LIABILITY CO, ALTICE FINANCING SA, HCA INC.

For more bond ETF strategies, visit our Fixed Income Channel.

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