Best High-Yield Bond ETFs for Q1 2022


High-yield bonds can be an attractive vehicle for investors because they pay higher interest rates than investment-grade bonds. On the other hand, high-yield bonds (also known as “junk” bonds) also carry a greater chance of defaulting than investment-grade bonds, making them a riskier addition to a portfolio.

Investors seeking to benefit from the higher interest payouts of high-yield bonds while controlling some of the risk through diversification can invest in a basket of high-yield bonds contained in exchange-traded funds (ETFs).

Key Takeaways

  • High-yield bonds underperformed the broad equity market over the past year.
  • The high-yield bond exchange-traded funds (ETFs) with the best one-year trailing total returns are ANGL, FALN, and HYLD.
  • The top holdings of these ETFs are bonds issued by Kraft Heinz Foods Co., bonds issued by Apache Corp., and shares of the iShares USD Asia High Yield Bond ETF, respectively.

There are 43 high-yield bond ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as funds with less than $50 million in assets under management (AUM). High-yield bonds, as measured by the Bloomberg U.S. Corporate High Yield Bond Index, have underperformed the broader market, providing a total return of 7.8% over the past 12 months compared to the S&P 500’s total return of 33.0%, as of Nov. 10, 2021. The best-performing high-yield bond ETF for Q1 2022, based on performance over the past year, is the VanEck Fallen Angel High Yield Bond ETF (ANGL). We examine the three best high-yield bond ETFs below. All numbers below are as of Nov. 11, 2021.

  • Performance over 1-Year: 12.3%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 4.01%
  • 3-Month Average Daily Volume: 1,597,138
  • Assets Under Management: $5.4 billion
  • Inception Date: April 10, 2012
  • Issuer: VanEck

ANGL aims to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE U.S. Fallen Angel High Yield 10% Constrained Index. The ETF focuses on so-called “fallen angel” bonds, which are bonds that were previously considered investment grade but have been downgraded to junk status. While these bonds are higher risk than investment-grade alternatives, this particular fund tends to hold bonds concentrated at the higher end of the credit quality spectrum, including some bonds which may eventually be upgraded back to investment grade. ANGL may have appeal to investors constructing a long-term portfolio or those looking to make a tactical allocation to a niche corner of the high-yield bond market. The fund’s top three holdings include bonds issued by the following entities: Kraft Heinz Foods Co., a subsidiary of food and beverage company The Kraft Heinz Co. (KHC); and two different sets of bonds issued by Sprint Capital Corp., a subsidiary of wireless communications company T-Mobile U.S. Inc. (TMUS).

  • Performance Over One-Year: 11.0%
  • Expense Ratio: 0.25%
  • Annual Dividend Yield: 3.63%
  • 3-Month Average Daily Volume: 1,538,953
  • Assets Under Management: $4.8 billion
  • Inception Date: June 14, 2016
  • Issuer: BlackRock Financial Management

FALN tracks the Bloomberg US High Yield Fallen Angel 3% Capped Index, which is composed of U.S. dollar-denominated high-yield corporate bonds that previously held an investment-grade rating. Like ANGL, the bonds held by this ETF are considered fallen angels, having lost their investment-grade status and been re-rated as junk. These bonds have historically exhibited a higher credit quality than the rest of the high-yield bond market. The fund invests in high-yield bonds of different durations across developed markets. Its top holdings include bonds issued by the following companies: Apache Corp., a subsidiary of oil and gas exploration and production company APA Corp. (APA); Occidental Petroleum Corp. (OXY), an oil and gas exploration and production company; and Western Midstream Operating LP (WES), a midstream energy company.

  • Performance Over One-Year: 10.4%
  • Expense Ratio: 1.37%
  • Annual Dividend Yield: 6.81%
  • 3-Month Average Daily Volume: 15,712
  • Assets Under Management: $132.8 million
  • Inception Date: Nov. 30, 2010
  • Issuer: Exchange Traded Concepts

HYLD is an actively managed ETF that targets junk bonds. It aims to generate high current income as a primary goal with a secondary objective of capital appreciation. It takes a value-based approach to credit selection, focusing on the less competitive, smaller-issuer portion of the market. As part of its risk management strategy, the fund takes into account a number of factors, including the macroeconomic and business cycle environments, credit and interest rate risks, and the idiosyncratic risks of specific issuers. HYLD’s top holdings include shares of the iShares USD Asia High Yield Bond ETF (O9P / QL3), which invests in high-yield bonds issued by governments and companies in Asia, excluding Japan; bonds issued by JBS USA LUX/JBS USA Finance Inc., a subsidiary of Brazil-based meat-processing company JBS SA (JBSAY) that was set up to issue debt securities, repay existing credit facilities, and for acquisitions; and bonds issued by Cooke Omega Investments Inc. / Alpha VesselCo Holdings Inc., a dual-issuer subsidiary of Canada-based seafood company Cooke Aquaculture Inc. that operates as a special purpose entity in order to issue debt securities for the repayment of existing credit facilities, refinancing indebtedness, and for acquisition purposes.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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