High yield bonds offer one of the best opportunities for regular income from interest payments for fixed income investors. Here we'll look at the best high yield bond funds.
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Introduction – Why High Yield Bonds?
High yield bonds are lower credit quality corporate bonds. Because of this higher credit risk, these bonds pay the highest yields compared to higher-credit investment-grade corporate bonds and treasury bonds. High yield bonds are also known as “junk bonds” due to their lower credit rating.
High yield bonds have become more attractive recently as yields on treasuries continue to fall. High yield bonds are still less risky than stocks. They offer somewhat of a middle ground between safe, stable treasury bonds and risky stocks. Selecting individual junk bonds can be risky, but buying a basket of them via an ETF allows investors to diversify across many different individual high yield bonds, thereby lowering the risk profile. Below we'll review the best high yield bond funds.
The 5 Best High Yield Bond Funds
Below are the best high yield bond ETFs for income investors.
HYG – iShares iBoxx $ High Yield Corporate Bond ETF
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is the most popular high yield bond fund, with over $30 billion in assets. This fund seeks to track the Markit iBoxx USD Liquid High Yield Index. The ETF has a weighted average maturity of roughly 4 years and an expense ratio of 0.48%.
JNK – SPDR Barclays High Yield Bond ETF
The SPDR Barclays High Yield Bond ETF (JNK) is another popular broad high yield bond fund. The ETF seeks to track the Barclays Capital High Yield Very Liquid Index. Compared to HYG above, JNK has a slightly lower average credit rating and thus a slightly higher yield. This ETF has an weighted average maturity of about 6 years and an expense ratio of 0.40%.
HYLB – Xtrackers USD High Yield Corporate Bond ETF
The Xtrackers USD High Yield Corporate Bond ETF (HYLB) is one of the more affordable high yield bond funds on this list to access USD-denominated corporate debt, with an expense ratio of 0.15%. This ETF seeks to track the Solactive USD High Yield Corporates Total Market Index.
USHY – iShares Broad USD High Yield Corporate Bond ETF
The iShares Broad USD High Yield Corporate Bond ETF (USHY) seeks to track the BofA Merrill Lynch U.S. High Yield Constrained Index. USHY providers broader exposure to the high yield bond market than the above ETFs, and would be more suitable for long term holding. The ETF has an expense ratio of 0.15%. This ETF is a component in the dividend portfolio I designed for income investors.
ANGL – VanEck Vectors Fallen Angel High Yield Bond ETF
The VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL) provides access to coveted “fallen angels,” historically strong, stable companies that are likely having temporary financial issues. The ETF seeks to track the ICE U.S. Fallen Angel High Yield 10% Constrained Index and has an expense ratio of 0.35%.
Where To Buy These High Yield Bond Funds
All the above high yield bond funds should be available at any major broker. My choice is M1 Finance. M1 has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, intuitive pie visualization, and a sleek, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.
Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
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