While the fund’s yield is not far below those available on longer duration junk bond ETFs, SFHY’s methodology takes steps to ensure a quality tilt, including excluding negative cash flow issuers.
“Our research found that filtering out private issuers and issuers whose free cash flow (FCF) is negative can provide exposure to a higher-quality portfolio with better risk-adjusted returns,” according to WisdomTree. “In addition, the index is overweight in issuers with a higher risk-adjusted spread to Treasuries as a tilt toward income needs. Impact: SFHY had a single default—4 basis points (bps) in market-value terms—in 2018 compared with roughly 30 defaults in the HY broad market.”
SFHY is up 2.33% year-to-date.
For more trends in fixed income, visit the Fixed Income Channel.