SPDR Bloomberg Barclays High Yield Bond ETF (JNK) v.
IndexIQ S&P High Yield Low Volatility Bond ETF (HYLV)
Two very different approaches to U.S. dollar high yield bonds.
Both are passive and are managed to an index.
They have similar management fees.
JNK is a pure “beta” play based on bonds that are constituents of the Bloomberg Barclays U.S. High Yield Index.
HYLV follows the S&P U.S. High Yield Low Volatility Corporate Bond Index which applies rules in specific order and progression to identify bonds that are less volatile than other bonds.
Premise: In periods of equity market volatility and/or rising rates focusing on bonds with lower volatility will provide less downside risk.
Sources: SPDRs, New York Life Investments & S&P Dow Jones Indices LLC. Table is provided for illustrative purposes only. Past performance is not a guarantee of future results. Data as 9/16/2019 except as noted. 1 30 Day SEC Yield as of 8/31/2019. 2 S&P U.S. High Yield Low Volatility Corporate Bond Index yield and duration.
So where do I stand?
The market environment hasn’t yet stressed either ETF from any real perspective: liquidity, volatility, defaults or credit spread widening.
JNK is a dominant ETF. It has size, scale and liquidity that HYLV does not yet enjoy. It also has higher yields than HYLV. In my view, JNK is the choice for low cost “beta” exposure to the corporate junk bond market.
If you are concerned about upcoming bond market volatility, an equity market downturn, recession, period of credit spreads widening or even rising rates then understanding the philosophy and underlying index rules of HYLV. Dive into the prospectus and index methodology with the understanding that the real test hasn’t yet happened.
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Rebalance for Q1 2019
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