The Goldman Sachs Access High Yield Corporate Bond ETF (GHYB) is just over two years old and may not be getting the appreciation it deserves among high-yield corporate bond funds.
Home to nearly $77 million in assets under management, GHYB targets the FTSE Goldman Sachs High Yield Corporate Bond Index. That index employs a simple, transparent process to identify an investible universe, then eliminates issuers with relative deteriorating fundamentals to offer exposure to an existing sector or market beta. The smart beta approach should provide liquidity while minimizing exposure to factors historically associated with volatility and underperformance.
“Downside risk is particularly acute in the high-yield corporate bond market, so it’s more important to focus on quality than yield here,” said Morningstar in a recent note. “That’s exactly what this strategy does. It offers broad market-value-weighted exposure to the U.S. high-yield market but excludes bonds from issuers with increasing leverage and declining capacity to service their debt relative to their industry peers.”
An influx of capital into safe-haven government bonds have put a strain on Treasury yields, causing investors to search every corner of the bond market for that seemingly elusive yield. However, there are still high yield bond exchange-traded funds (ETFs) that are providing fixed-income investors with the yield they desire.
Inside GHYB
GHYB holds nearly 450 bonds and had an effective duration of 3.20 years at the end of July, according to the issuer.
With the high yield market getting more risky, it’s necessary for investors to shed some of that risk and get more strategic with their capital allocation. This could mean looking to options like investment-grade debt for higher-yielding income sources. As of July 31, the fund had a 30-day SEC yield of nearly 5%.
GHYB “starts with U.S.-dollar-denominated corporate bonds rated below-investment-grade with between one and 15 years until maturity. After applying an adjustment to keep the portfolio’s duration in line with the broad high-yield market, the fund ranks all issuers based on the year-over-year change in their leverage (debt/enterprise value) and debt service (debt/EBITDA),” according to Morningstar.
Related: Building Blocks for Your Fixed Income Portfolios
GHYB also steers investors clear of financially strained firms that could be default risks.
“The leverage ratio incorporates market prices but says little about a firm’s ability to handle that debt load,” said Morningstar. “Focusing on year-over-year changes in these metrics effectively reduces the portfolio’s exposure to bonds with deteriorating fundamentals. They also reduce its exposure the lowest-credit-quality bonds, which have historically delivered subpar returns relative to their risk.”
For more on fixed income strategies, please visit our Fixed Income Channel.
