The PIMCO 0-5 Year High Yield Corporate Bond (NYSEArca: HYS) is one of several ETFs designed to reduce interest rate risk while helping investors derive the income benefits of high-yield corporate bonds.
HYS tracks the BofA Merrill Lynch 0-5 Year US High Yield Constrained Index and “is designed to capture, before fees and expenses, continuous exposure to the short maturity segment of the high yield corporate bond sector,” according to PIMCO.
HYS, which recently turned seven years old, has an effective duration of just 2.14 years, putting it in the low duration category.
“A short-term high yield strategy may have lower volatility than a broad maturity high yield strategy, a lower correlation to equities and an even greater inverse correlation to Treasuries. The fund had a duration of 2.2 years on June 30, 2018, compared with 3.7 years for a broad high yield index (as represented by The ICE BofAML US High Yield Index),” according to the issuer.
HYS Advantages
In a rising interest rate environment, HYS 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.
Yields on benchmark Treasuries have increased this year as market observers anticipate further monetary policy tightening out of the Federal Reserve.
Nevertheless, fixed-income investors have a number of ways to hedge their portfolios against rising rates through targeted exchange traded fund strategies.
The $1.66 billion HYS holds nearly 400 bonds. At the end of the second quarter, the top five issuer industries in the fund were oil and gas exploration and production, healthcare, technology, media and mining.
A significant portion of HYS holdings carry ratings ranging from BBB- to B-, but the fund does devote over 10% of its weight to junk bonds with highly speculative CCC or lower ratings.
HYS charges 0.55% per year, or $55 on a $10,000 investment.
For more information on the fixed-income space, visit our bond ETFs category.