High-yield corporate debt and the related ETFs delivered solid performances in 2025. More of the same is expected this year. Still, some advisors and fixed income investors want to reduce risk while maintaining access to junk bond yield perks.
The good news is that the overall quality of the high-yield corporate bond space is improving. There are tools to tap into that trend while mitigating risk. Enter the Xtrackers Low Beta High Yield Bond ETF (HYDW).
HYDW, follows the Solactive USD High Yield Corporates Total Market Low Beta Index. It turned eight years old last month. This ETFcould be relevant today for bond investors looking to enhance income while not biting off significantly more risk.
HYDW Merits Closer Examination
Some junk bond ETFs garner more attention. However, HYDW, which yields nearly 5%, may be worthy of closer examination. This is particularly true as the broader universe of high-yield corporate debt is improving in quality.
“This market is home to debt issued by borrowers with lower relative credit quality and a higher relative risk of default, and it was long among the riskiest corners of the fixed-income universe,” says Tom Lauricella of Morningstar. “Fifteen years ago, 41% of the high-yield bond market was rated BB—the rung just below investment-grade bonds, which have a lower risk of default—or better. A decade ago, those bonds were 49% of the market. Today, the credit quality of the high-yield bond market has improved, with roughly 59% of the market rated BB or better.”
HYDW leans into the notion that investors don’t have to take on excessive risk or volatility in order to harness the advantages of junk bonds. The potential for the ETF to have lower drawdowns than traditional counterparts is meaningful. Over long holding periods – always relevant with fixed income ETFs – lower drawdowns often facilitate better returns. That doesn’t mean HYDW is free of risk. Stiull, the fund is lower risk relative to old guard rivals.
“Across the market, one of the key risks in bond investing is an issuer’s ability to repay the money it has borrowed—a risk that is commonly assessed through credit quality. Ratings agencies assign bonds measures of credit quality, which reflect their assessment of the likelihood that the issuer will not default on the debt,” adds Lauricella.
HYDW charges 0.20% per year, or $20 on a $10,000 investment.
For more news, information, and strategy, visit the Fixed Income Content Hub.
