Various data points indicate some investors are retreating from high-yield corporate bond exchange traded funds while some traders are significantly boosting bearish bets against these funds.
Investors still looking for the added income and yield benefits of junk bonds may want to consider alternative approaches, including reduced volatility. The Xtrackers Low Beta High Yield Bond ETF (NYSEArca: HYDW) is an ETF that can help with that objective. Deutsche Asset Management introduced the Xtrackers Low Beta High Yield Bond ETF in January.
HYDW holds 384 junk-rated bonds and follows the Solactive USD High Yield Corporates Total Market Low Beta Index. That benchmark includes junk-rated debt that exhibits lower overall beta to the broader high-yield bond market. Consequently, the portfolio is comprised of lower-yielding junk bonds that show a lower beta.
Assets deemed as low volatility usually offer better risk-adjusted returns over the long-term. Investors are embracing HYDW’s strategy. The ETF is not even two months old and already has $130.3 million in assets under management, making it one of this year’s most successful new fixed income ETFs.
The bulk of HYDW’s holdings are rated BB or B, putting the ETF at the higher end of the junk-rated spectrum. Additionally, the ETF has only light exposure to speculative CCC-rated bonds. At the end of last year, HYDW’s underlying index had a yield-to-worst of just over 4% and a modified duration of 4.22 years, according to issuer data. Duration measures a bond’s sensitivity to changes in interest rates.