A High Yield Option
A volatile end to 2018 no doubt elicited a risk-off sentiment that permeated throughout the capital markets, causing high-yield bond funds to experience an aggregate one-month outflow of $1.45 billion, according to data from XTF. However, it appears investors could be turning a corner on high-yield thus far in 2019.
With bond market mavens warning investors of headwinds in the fixed income space like the possibility of inverted yield curve, rising rates and BBB debt sliding out of investment-grade, investors need to be keen on where to look for opportunities.
One area is within the municipal bond space, which may have gotten a boost following last November’s midterm elections. In particular, with respect to infrastructure spending—it’s one of the few things, if any, that Democrats and Republicans can agree on, but with the newly-divided Congress, this could fuel municipal bond ETFs.
One option would be the VanEck Vectors High-Yield Municipal ETF (BATS: HYD), which seeks to replicate the performance of the Bloomberg Barclays Municipal Custom High Yield Composite Index. HYD normally invests in securities that comprise the benchmark index, which is comprised of publicly traded municipal bonds that cover the U.S. dollar denominated high yield long-term tax-exempt bond market.
During the volatile period between November 8,2018 and December 24, 2018, HYD was up about 2 percent as a majority of U.S. equities were experiencing deep declines. According to Michael Cohick, Senior ETF Product Manager at VanEck, this presented an opportune time “for investors to consider both reengaging the tax exempt bond market and positioning in the intermediate part of the investment grade yield curve.”
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