Eighty percent of JNK’s total assets comprise the Bloomberg Barclays VLI and based on the chart below, a steady climb of the higher bottom levels may signal a possible run up in the second half of 2018. Thus far, JNK has been able to extract a 2.53 percent total yield in the last three years.
Related: Global Corporate Debt Growing at Rapid Pace
The Bloomberg Barclays VLI measures the performance of publicly issued U.S. dollar denominated high yield corporate bonds with above-average liquidity–this is where JNK thrives in that it can easily exit in and out of debt positions quicker due to the higher liquidity. The index uses the same eligibility criteria as the US Corporate High Yield Index, but includes only the three largest bonds from each issuer that have a minimum amount outstanding of $500 million and less than five years from issue date.
Debt characteristics for inclusion in the index:
- Sector Corporate (industrial, financial institutions, utility) issues only.
- Eligible Currencies Principal and interest must be denominated in USD.
- Quality Securities must be rated high yield (Ba1/BB+/BB+ or below) using the middle rating of Moody’s, S&P and Fitch; when a rating from only two agencies is available, the lower is used; when only one agency rates a bond, that rating is used. In cases where explicit bond level ratings may not be available, other sources may be used to classify securities by credit quality: • Expected ratings at issuance may be used to ensure timely index inclusion or to classify split-rated issuers properly. • Unrated securities may use an issuer rating for index classification purposes if available. Unrated subordinated securities are included if a subordinated issuer rating is available.
- Amount Outstanding USD500mn minimum par amount outstanding.
- Largest Issuer Constraint Only the three largest securities, based on amount outstanding, from each issuer are included.
- Coupon • Fixed-rate coupon
In a rising interest rate environment, JNK can cushion the impact should the Federal Reserve continue to be hawkish on the economy if the latest data warrants more short-term interest rate spikes. In addition, a growing economy could signal less default rates for company debt included in the Bloomberg Barclays VLI.
Of course, with any investment that offers high-yield, an accompaniment of higher risk is typically the norm so an investor would be wise to perform his or her own due diligence prior to investing in high-yield bonds.
For more trends in the fixed income space, visit the Fixed Income Channel.