High-Yield Energy Outperforms All Other HY Sectors | ETF Trends

With crude oil spiking to over $100 a barrel, high-yield energy has outperformed all other high-yield sectors in 2022, according to BondBloxx Investment Management co-founder and CIO Elya Schwartzman.

Commenting on the recent dispersion in U.S. high-yield bonds across industry sectors and credit quality, Schwartzman noted that the high-yield energy sector returned more than 60 basis points in the recent month vs. -180 bps for high yield excluding energy. Schwartzman cited Ice Data Services as the source for the data.

Excluding energy, healthcare has outperformed other high-yield sectors by 85 bps over the recent month. Consumer non-cyclicals, meanwhile, have lagged the rest of high yield by 230 bps over the last three months due to quality and rate sensitivity. Also, Single B-rated high yield outperformed BBs by 140 bps over the last three months.

“There are a few obvious standouts – the three-month variance between energy and consumer non-cyclicals or B/CCC and BB, for example, but there are also many more nuanced variations that are still highly significant in fixed income,” Schwartzman said.

In February, BondBloxx launched seven U.S. high-yield bond ETFs that offer precise, index-based exposure to the high-yield asset class and allow investors the opportunity to diversify and manage risk to the industry sector. The funds are passively managed and track rules-based sub-indexes of the ICE BofA US Cash Pay High Yield Constrained Index.

BondBloxx was founded by ETF industry leaders Leland Clemons, Joanna Gallegos, Schwartzman, Mark Miller, Brian O’Donnell, and Tony Kelly. The team has collectively built and launched over 350 ETFs at firms including BlackRock, JPMorgan, State Street, Northern Trust, and HSBC.

According to the issuer, more institutional investors are acknowledging the role that fixed income ETFs can play in their portfolios, even during times of volatility. They can offer short-term liquidity while offering a more efficient way to keep portfolios in balance. Sector ETFs enable intentional tactical tilts to their portfolios. They can also enhance price discovery, even when transparency is low, or the underlying securities are not trading.

“One of our goals at BondBloxx is to provide market awareness of the variation of returns within the credit markets,” said Schwartzman. “An important yet unappreciated source of outperformance for investors is the dispersion of returns within the broader bond market categories, especially during times of market dislocation.”

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