With summer travel and leisure spending underway, investors can utilize targeted high-yield sector investing to chase returns.
Targeting a specific high-yield sector can provide a great deal of value to investors seeking portfolio diversification. There are innate risks present within high-yield investing. However, junk bonds can also serve as downside protection in instances where equities may be overvalued.
BondBloxx offers an extensive suite of ETFs that cover a wide variety of high-yield sectors. By utilizing fund flows data from FactSet, advisors can get a better understanding of which sectors are resonating with investors at this time.
For example, the BondBloxx USD High Yield Bond Consumer Cyclicals Sector ETF (XHYC) has seen over $11 million in net flows over the last month. XHYC utilizes high-yield bonds to provide investors with exposure to the consumer cyclicals sector.
Examining the constituents of XHYC can help illuminate why the fund may be a valuable portfolio option amid summer spending. The consumer cyclicals sector encompasses companies whose performance can be closely attributed to current economic conditions. This includes automotive, real estate, leisure, department stores, and specialty retail subsectors.
The ETF does not equally weight subsectors. As of June 4th, 2024, over 53% of XHYC’s constituents were within the leisure subsector. The ETF targeted 26% of assets towards retail.
Robust Travel Anticipation
The heavy portfolio weight in leisure and retail positions XHYC well heading into the summer season. Recent data from Bank of America shows that while credit and debit card spending on travel from January to May 2024 fell slightly over last year’s numbers, spending is still up 13.3% compared to 2019’s levels.
Robust travel spending numbers come as BofA also found that 70% of survey respondents are planning on traveling during the summer. The survey also found that younger generations like Millennials and Gen Z intend to travel for longer and spend more compared to past summers.
With indicators mounting in support of high leisure spending, investors can utilize XHYC as a diversified means to capture returns from robust travel demand. The majority of bonds within XHYC have an intermediate maturity duration as well, allowing assets to benefit from potential interest rate shifts while mitigating reinvestment risk.
As of May 31st, 2024, XHYC has a yield to maturity rate of 7.48%. The fund currently possesses over $57 million in assets under management.
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