A Junk Bond ETF With Minimal Duration Risk

Investors, though, do not need to sacrifice yields to diminish rate risk. Alternatively, investors can look to rate-hedged or zero-duration bond ETFs. The group of interest rate-hedged or zero duration ETFs hold long-term bonds but also simultaneously short Treasuries or Treasury futures contracts to hedge against potential losses if interest rates rise.

Due to their near-zero durations, the rate-hedged bond funds should show little to no sensitivity to changes in interest rates. These types of hedged-bond ETFs could provide suitable exposure to the fixed-income market in a rising interest environment ahead.

HYZD has an effective duration of -0.14 years and a 30-day SEC yield of 5.27%, indicating that while the fund reduced rate risk, it does not rob investors of income.

Over 82% of HYZD’s holdings are rated BB or B. The ETF also allocates nearly 11% of its weight to highly speculative CCC-rated bonds. HYZD charges 0.43% per year, or $43 on a $10,000 investment.

For more information on the fixed-income space, visit our bond ETFs category.