68 High Yield Bond ETFs Ranked for 2022

The fixed income market remains one of the most difficult places to invest. As of this writing, you cannot find a 2% yield anywhere on the standard US Treasury yield curve. High-quality corporate bonds could earn you around 3% if you’re willing to aim for long-term maturities. Unwanted bonds have been the landing point for many income seekers in 2021. Their 4-5% yields, according to the ETF, have not kept up with inflation rates, but at least they have brought them closer. investors break even in terms of real returns. They also produced around 4% of total returns, as good quality companies held steady and Treasuries were slightly negative.

2022, however, could be the year the risk goes unrewarded. The Fed’s final decision to raise interest rates could put downward pressure on fixed income prices. Additionally, the uncertainty surrounding the omicron variant – it may not be fatal like other strains of COVID, but it might not matter economically if workers are forced to stay home or if workers are forced to stay home. companies are cutting hours due to staff shortages – could stifle GDP growth and push prices for risky assets down.

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A few areas of the high yield bond market were particularly interesting. The fallen angel group – those that were rated investment grade when issued, but were later demoted to junk – outperformed. Markets were generally more favorable to risky assets, but the potential for lower quality bonds perhaps returning to their former glory added a certain degree of attractiveness to investors.

Another area that performed well was the mun bond market. Overall, the group made only minor gains in the range of 1-2%, but that was enough to outperform other areas of the bond market. Munis, of course, are more beneficial to those in higher tax brackets, but the tax-equivalent returns are such that those in lower tax brackets can still benefit. also. This is especially true in the high yield segment of the bond space, where taxable equivalent returns could reach nearly 5%.

Default rates on junk bonds, in general, are low, but this group can still be volatile. It makes sense to add exposure to junk bonds in most portfolios, but it will be important not to overdo it in order to earn extra return.

Ranking of High Yield Bond ETFs

The variety of ETF choices makes distinguishing between the best and the rest a bit difficult. You’ve probably heard most financial experts talk about focusing on low expense ratio funds. This can certainly be an important factor in deciding which ETF to choose (this is probably the most important factor in my opinion), but there are a lot of things that could go into making the right choice.

This is where I’ll try to make it easier for you. Using a methodology that I have developed, which takes into account many factors to consider and weights them according to their perceived level of importance, we can rank the universe of available ETFs in order to help to identify the best of the best for your portfolio.

Now it certainly won’t be a perfect ranking. The data, of course, will be objective, but judging what is most important is very subjective. I’m just taking my years of ETF experience to help investors build smart and profitable portfolios.

ETF Methodology and Ranking Factors

Before we dive in, let’s establish some ground rules.

First, all the data used comes from ETF share. They scoured the ETF universe to identify and categorize the ETFs used here. There are many that qualify and we will use their categorization as a starting point. Many thanks to them for opening their extensive database for my use.

Second, let’s take a look at the factors I used in the ranking methodology.

  • Expense ratio – This is perhaps the most important factor since it is the only thing that investors can control. If you choose a fund that charges 0.1% per annum versus a fund that charges 1%, you automatically get an advance of 0.9% per annum. You cannot control the performance of a fund, but you can control what you pay for the portfolio. Lower expense ratios equate to more money in your pocket.
  • Spreads – This is about how you can buy and sell stocks cheaply. In general, the larger the fund, the lower the spreads. Larger funds usually have many buyers and sellers. Hence, it is easier to find stocks to trade and it makes them cheaper to trade. On the other hand, smaller funds tend to trade fewer stocks and investors often have to pay a premium to buy and sell. Looking at expense ratios and spreads together usually gives you a better idea of ​​the total cost of ownership.
  • Diversification – In general, the larger a portfolio, the better its chances of reducing overall risk. A fund, like the Energy Select Sector SPDR ETF (XLE), is a good example. 45% of the fund’s total assets go to just two stocks – ExxonMobil and Chevron. By purchasing XLE you have placed great trust in these two companies. An evenly weighted fund, like the Invesco S&P 500 Equal Weight Energy (RYE) ETF, would have a higher diversification score than XLE.
  • FactSet ETF Scores – FactSet calculates its own exclusive ETF ranking in terms of efficiency, negotiability and fit. They are basically designed to tell us if an ETF is doing what it intends to do. I’m not going to copy and paste what work they do, but there is some leverage there to make sure my ranking is on track.

There are a few other minor factors in the mix, but these are the main factors taken into account.

One thing that is not taken into account is historical returns. Most ETFs are passively managed and simply try to follow an index, not outperform. ETFs should not be penalized for low returns just because the index they are tracking is no longer popular at the moment.

I rank ETFs based on more fundamental structural factors. Are they cheap to own? Are they liquid? Do they minimize trading costs? Do they retain diversification benefits that reduce risk?

Being in the bottom half of the list doesn’t automatically make a fund “bad”. It just means that due to a low asset base, high expense ratio, concentrated portfolio or some other factor, there are additional costs or downside risks.

Best High Yield Bond ETF Rankings for 2022

The two cheapest high yield bond ETFs clearly stand in a separate tier in terms of costs and occupy the top two places in this ranking. One name you won’t find anywhere on this list is Vanguard. Why? Although it offers over 80 ETFs in total, it does not offer pure high yield bond funds.

Best High Yield Bond ETFs Ranked for 2022

Place n ° 1 goes to IShares Broad USD High Yield Corporate Bond ETF (USHY). It is the 4th largest unwanted bond ETF and the 2nd cheapest at just 0.15%. The least expensive is the fund ranked # 2, the SPDR Portfolio High Yield Bond ETF (SPHY). This fund is a bit odd considering that most of the funds that go by the SPDR name, charge only 0.10%, and have been around for almost a decade, would likely be huge. SPHY, however, has just over $ 500 million in assets. It has undergone a few iterations over the years in terms of index change, but SPHY is a real fund under the radar that shouldn’t be ignored.

The two giants of this group – the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the Bloomberg SPDR High Yield Bond ETF (JNK) – land at # 5 and # 3, respectively. The pair represents around 30% of all junk bond ETF assets. Between them is the JPMorgan High Yield Research Enhanced ETF (JPHY). It is by far the top-ranked actively managed ETF on this list and uses a proprietary credit research methodology as well as an ESG overlay to build its portfolio, but its expense ratio of 0.24% is still the one of the cheapest.

I mentioned the fallen angel bond ETFs earlier. the IShares Fallen Angels USD Bond ETF (FALN) and the VanEck Fallen Angel High Yield Bond ETF (ANGL) are the two main options for targeting this strategy. They come in 12th and 20th places in total. the SPDR Blackstone Senior Loan ETF (SRLN) is the 3rd largest junk bond ETF targeting the high-risk senior lending space, but it only ranks 15th due to its high expense ratio. the Invesco Senior Loan ETF (BKLN) is a slightly cheaper but lower tier alternative.

The next batch of 30 names is mostly smaller ETFs, but there are some interesting non-traditional strategies out there.

Best High Yield Bond ETFs Ranked for 2022

Best High Yield Bond ETFs Ranked for 2022

I always found the Xtrackers High Beta High Yield Bond ETF (HYUP) and the Xtrackers Low Beta High Yield Bond ETF (HYDW) be interesting options. HYDW has generated much more interest than HYUP and offers investors another way to tilt their exposure to unwanted bonds.

the IShares BB listed corporate bond ETF (HYBB) is another low risk option for high yield exposure and targets the highest rated debt within this group, as the name suggests. the ETF iShares Interest Rate Hedged High Yield Bond (HYGH) and the WisdomTree High Yield Bond Interest Rate Hedged ETF (HYZD) remove most of the interest rate risk from the equation (although credit risk still exists).

the ETF KraneShares Asia Pacific High Income Bond (KHYB) is by far the biggest outlier of the bunch. Its strong exposure to the Chinese real estate sector has made it a sort of proxy for the problems occurring in Asia. It has a current yield of almost 8%, but the unknown outcome of a possible Chinese real estate crisis makes it a particularly risky junk bond ETF to own.

And the rest of the high yield bond ETF rankings:

Best High Yield Bond ETFs Ranked for 2022

Best High Yield Bond ETFs Ranked for 2022

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