High-Yield Bond Strategies Led Fixed-Income in Q2

It was back-to-back winning quarters for high-yield bond strategies, which led a Morningstar Inc list of top fixed-income performers during the second quarter, taking seven out of the top 10 spots. High-yield bond strategies have been outperforming their investment-grade counterparts by an average of 2%.

According to Emory Zink, fund analyst, fixed-income strategies at Morningstar in Chicago, “a strengthening dollar put pressure on non-U.S. dollar denominated holdings, resulting in challenges for foreign-currency denominated bonds. The unhedged (Bloomberg Barclays’) Global Aggregate Bond index lost 2.78% for the quarter, while the (JP Morgan) Emerging Markets Local-currency index plummeted 10.42%.”

High Yield Fixed-Income ETF Options

Fixed-income ETFs like the iShares iBoxx $ High Yield Corp Bd ETF (NYSEArca: HYG)SPDR Blmbg BarclaysST HY Bd ETF (NYSEArca: SJNK) and iShares 0-5 Year High Yield Corp Bd ETF (NYSEArca: SHYGcan give investors exposure to these high-yield strategies without the added credit risk of investing in bonds directly.

HYG tracks the investment results of the Markit iBoxx® USD Liquid High Yield Index, which is comprised of high yield U.S. corporate bonds that have less than investment-grade quality. Investors who have been able to forego the credit risk have seen total returns of 3.95% the last three years and 1.22% the past year based on Yahoo! Finance performance figures.

SJNK seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays US High Yield 350mn Cash Pay 0-5 Yr 2% Capped Index. SJNK invests its total assets in the securities comprising the index, which is designed to measure the performance of short-term publicly issued U.S. dollar-denominated high yield corporate bonds. The short-term maturities will help hedge some credit risk due to the lesser exposure, but holdings are still less than investment-grade. SJNK has returned 1.20% year-to-date, 2.94% the past year and 3.76% the last three years.

SHYG seeks to track the investment results of the Markit iBoxx® USD Liquid High Yield 0-5 Index, which is primarily composed of U.S. dollar-denominated, high yield corporate bonds with remaining maturities of less than five years. Like SJNK, debt maturities are shorter, thereby helping to hedge some credit risk, but issues are still less than investment-grade. Nonetheless, SHYG has managed to return 1.13% year-to-date, 2.86% the past year and 4.14% the last three years.