ETF of the Week: BondBloxx USD High Yield Bond Sector Rotation ETF (HYSA)

On this episode of the “ETF of the Week” podcast, Tom Lydon discussed the BondBloxx USD High Yield Bond Sector Rotation ETF (HYSA) with Chuck Jaffe of “Money Life.” The pair discussed several different topics regarding the fund to give investors insight into it.


Chuck Jaffe: One fund, on point for today, the expert to talk about it. Welcome to the ETF of the Week. Yes, it’s the ETF of the Week, where we get the latest take from Tom Lydon. He’s the vice chairman at VettaFi, and at VettaFi, they’ve got a tremendous suite of tools that are going to help you become a smarter, savvier investor in exchange traded funds. Check it out at Tom Lydon, it’s great to chat with you again.

Tom Lydon: Great to be back. Thanks, Chuck.

Chuck Jaffe: Your ETF of the week is …

Tom Lydon: It is the BondBloxx USD High Yield Bond Sector Rotation ETF (HYSA), ticker symbol HYSA!

Why the HYSA ETF?

Chuck Jaffe: HYSA, the BondBloxx U.S. Dollar High Yield Bond Sector Rotation ETF. There is a lot in that name. There is a lot in this fund. But high yield now, Tom, because that’s not a call that a lot of people are making. So why this fund this week?

Tom Lydon: Well, you’re right, Chuck. There’s a lot packaged just in the name. There’s a lot packaged in this ETF. There are actually a lot of people who are surrounded by this ETF that make it all work. So, first of all, yes, high yield sector rotation bond blocks is one of those innovative companies that actually have ETFs that are specific to the fixed income space and specific sectors, new and innovative.

And they’ve done really well over a short period of time. They have a subadvisor to this ETF, Macquarie, a renowned fixed income manager that actually comes in and uses the tools, those sector bond ETFs to determine the allocation within this ETF. So imagine the different sectors in the ETF space specific to the high yield marketplace. Macquarie comes in based on their analytics to determine how much, if any of each of those sectors would be in this allocation.

Pretty innovative because, as you can imagine, during certain economic periods, some sectors tend to do better than others. And as you’re warning, check high yield now, especially as we’ve seen these hikes in interest rates, why would we even think about it?  I mean, this is below its trend line for sure. However, there are a lot of people out there in the marketplace who are feeling we may see lower interest rates a year from now.

What Happens If We See Lower Interest Rates?

And if that’s in fact the case, not only can you lock in these higher yields, but you may be able to realize some appreciation along the way. Remember, if rates go lower, the value of the bonds that are currently outstanding goes up in value. Hence, higher yield, greater yields. And if you’re picking the right sector at the right time, based on the current economic environment, you could actually do well also.

So just today, Chuck, I talked to Paul Matlack, who’s one of the portfolio managers over at Macquarie, along with JoAnne Bianco, who’s one of the partners at BondBloxx. We’re actually doing a webcast coming up specifically about this strategy. And when you look at the yield, this ETF currently has a yield maturity of 9.24%. So if we’re actually towards the tail end of hikes and we might see lower rates a year from now, it’s pretty nice to be able to look at what those rates might offer.

Also, with the ability for maturity and if these companies are doing the right job to stay with the companies that, especially in the high yield side, are positive, and healthy financially, they’re paying off their debt. Very little defaults that could really do well in the future.

How Much of Your Portfolio Should It Account For?

Chuck Jaffe: So, frequently when we’re talking about certain asset classes, I will ask, how much of a portfolio do you want to make it? And I’m always asking you, is it a 200-day moving average play? Well, let’s put those two things together, because obviously, high yield or junk bonds are an acquired taste for some people. So how much of a portfolio would you let it be?

And then the secondary side, obviously not a trend-following play — or if it is, you’re not getting it now — but when you are making an allocation, even if you’re not a trend follower, because you always will say, well, hey, it’s a moving average play if you’re a trend follower, but if you’re not, and you know that, you might say, here’s a fund that’s below its trend.

Would you say, OK, I might go to 5% or 10% of a portfolio in high yield or junk if it’s above trend? But I’ll be at  half that allocation, if it’s below? Does trend ever affect the person who is not a trend follower?

Tom Lydon: So there’s a lot of packaged into your question, Chuck. I’ll just say this from a holistic standpoint. In the last couple of years, if you were a fixed income investor, you probably took some money off the table. You probably pushed some into cash or short-duration Treasuries. And if you did so, you did the right thing. Fast-forward to today, where there are a lot of people that have cash on the sidelines and feel that rates might be lower a year from now.

‘I Don’t Want to Be Stuck on the Sidelines and Penalized’

I don’t want to be stuck on the sidelines and penalized if, in fact, we see lower rates in the future. So with that in mind, this really doesn’t have as much to do with trends, because if this ETF did have 200 days in history, it would be probably below its trend line. But more importantly, as people are gradually going to move back to a 60/40 allocation, we have an opportunity to look past major market indices like Barclays Agg.

We can go into sectors, we can go into active management, we can go a little bit more into specific high yield versus corporate credit. And with those choices in mind, we think about the current yields that are available today that we haven’t seen in 20 years. I mean, they’re very, very attractive. The thing that’s scary for most people is a lot of people lost money in bonds in the last couple of years, but we’re probably to the tail end of that risk cycle.

The folks at Macquarie point out that if you invested after a rate hike period and the Fed had two pauses, usually the next six to 12 months is fairly favorable. So if that is all is the case, even if things were flat from here and you got that 9% coupon, it’s pretty attractive. I think the biggest thing I’m trying to point out here for those folks that felt really good about moving money to the sidelines and now you’re in money market funds getting 5%, that’s great.

But if rates are lower a year from now, that 5% isn’t going to be available. And you probably missed out on some appreciation.

Where Is This Money Coming From?

Chuck Jaffe: And in terms of where the money comes from, are you taking this money from the money that’s on the sidelines? Are you taking this out of your bond allocation?

Tom Lydon: I would say you’re probably taking it from money that’s on the sidelines because there are a lot of folks that were burned a bit from the bond market, and rightly so. But again, as we look forward, I think there are going to be rosy periods. I mean, we haven’t seen these yields in a long period of time. But in order to actually experience these yields, you have to actually invest in the bond market.

And they do get close to 8%, 9%, 10%. You’ve got to be in the high yield market. And rather than just buying cap-weighted market indices and fixed income, why not look to experts who not only have different sector weightings but will select the proper weightings based on the current economic periods? The important thing here, folks, is to go in, and do your homework both at Macquarie and at BondBloxx. Understand what’s underneath the hood.

Closing Thoughts

Chuck Jaffe: It’s HYSA, the BondBloxx U.S. Dollar High Yield Bond Sector Rotation ETF. The ETF of the Week from Tom Lydon. Tom, great stuff as always. See you next week.

Tom Lydon: Thanks, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. Yup, that’s me. If you want to learn about my hour-long weekday program, go to Look for it wherever you find your favorite podcast. But if you want to learn more about investing in exchange traded funds and get a suite of tools, is going to help you do just that. Make sure you check out VettaFi on Twitter @Vetta_Fi, and Tom Lydon, their chairman, my guest, as he’s on Twitter too. He is @TomLydon. ETF of the Week is here for you every Thursday and we’d love it if you made sure that you didn’t miss an episode by following along on your favorite podcast app. Until next week. Happy investing, everybody.

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