U.S. high yield rebounded this year after experiencing the worst total return year in 2022 since the Global Financial Crisis. The doubling of yields in 2022 have reset valuations to more attractive levels. These higher average yields may improve its ability to generate income. They may also provide cushion for potential spread widening.
A white paper issued by BondBloxx Investment Management argues that investors may want to increase their allocation to high yield.
“We believe the allocations that investors make among U.S. high yield industry sectors and credit rating categories can have material risk/return implications for their portfolios,” according to BondBloxx. “Seeking to capitalize on the potential for continued wide dispersion within high yield can create opportunities for potential outperformance in 2023.”
See more: “Within High Yield, Credit Rating Category Positioning Matters”
The return dispersion among industries within the sector was wide in the first half of 2023. In fact, the difference in 1H23 total return performance between the best-performing industry (consumer cyclicals) and the worst (technology, media, and telecom) was 560 basis points.
For investors looking to add high yield to their portfolios, BondBloxx offers seven sector-specific high yield bond funds. Among the funds is the BondBloxx USD High Yield Bond Consumer Cyclicals Sector ETF (XHYC), which targets consumer cyclicals companies. The consumer cyclical sector returned 8.47% year-to-date as of June 30, according to ICE Data Services.
Precise Fixed Income Exposure Through ETFs
BondBloxx was launched in October 2021 to provide precision ETF exposure for fixed income investors. The firm offers 19 ETFs that span U.S. Treasuries, industry- and credit rating-specific high-yield bonds, and emerging markets bonds. BondBloxx 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,” Rosenbluth said. “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.