U.S. high yield has rebounded in the first half of 2023. This comes after experiencing the worst total return year — 2022 — since the great financial crisis. But the doubling of yields in 2022 reset valuations to levels that appear more attractive.
Investors looking to capitalize on the potential for continued wide dispersion within high yield may want to consider increasing their allocation to junk bonds. But according to BondBloxx, when investing in high yield, precision matters.
See more: “High Yield Outperforms All Other Fixed Income”
Target BB-Rated Bonds With XBB
If investors are worried about weakening U.S. economic conditions, they should consider investing in BB-rated bonds. Double-B bonds exhibit the most balance sheet strength and the lowest historical default rate within high yield.
The BondBloxx BB-Rated USD High Yield Corporate Bond ETF (XBB) seeks to invest in bonds rated BB1 through BB3. XBB has the lowest default risk, with an average default rate of 1%, according to Moody’s. The ETF is one of three ratings-specific high yield bond ETFs that BondBloxx sells to investors.
Invest in Consumer Resilience Through High Yield ETF XHYC
Meanwhile, for investors wanting to gain high yield exposure through a specific sector, BondBloxx has seven sector-specific high-yield bond funds. Among them is the BondBloxx USD High Yield Bond Consumer Cyclicals Sector ETF (XHYC).
XHYC targets the consumer cyclicals sector. This includes the automotive, leisure, real estate development & management, department stores, and specialty retail subsectors. The fund is ideal for investors interested in a high yield industry that benefits from the resilience in the U.S. consumer.
Precision ETF Exposure for Fixed Income Investors
BondBloxx offers 20 ETFs that span U.S. Treasuries, industry- and credit-rating-specific high yield bonds, and emerging markets bonds. The firm exceeded $2 billion in assets under management in early August.
VettaFi’s Head of Research Todd Rosenbluth called BondBloxx “one of the more innovative providers of fixed income ETFs.”
“They offer advisors and investors the opportunity to target duration with risk-off government bonds,” he noted. “In addition, they have a suite of credit-quality-focused high yield ETFs for those willing to take on additional risk for higher rewards.”
For more news, information, and analysis, visit the Institutional Income Strategies Channel.