The dovish monetary policy stance adopted by the Fed has put a damper on investor income investing strategies. With a near-zero interest rate, Fed purchases of US Treasuries and mortgage backed securities, people have turned to higher yielding bonds for a high income return. Given the historically low interest rates, more people want to buy bonds already on the market, than newly issued bonds with a lower rate.
The current employment and income scenario amid the recession has increased focus on high yielding bonds, as people are willing to assume higher risk for a higher yield. As such, junk bonds have become quite popular, predominantly for their high dividend payouts.
SPDR Barclays High Yield Bond ETF (JNK), iShares iBoxx $ High Yield Corporate Bond ETF (HYG), and VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL) are some of the best performing exchange traded funds in the high yield bond space. These ETFs have yields of 5% or higher.
SPDR Bloomberg Barclays High Yield Bond ETF (JNK)
JNK invests in junk bonds having at least 1 year to maturity. These bonds have a low credit rating, implying higher risk of default. However, these bonds have a high yield to compensate for the risk assumed by investors. With assets under management (AUM) of $13.01 billion, JNK’s biggest holdings include Centene Corporation (CNC), Transdigm Inc. (TDG), and Carnival Corporation (CCL). The ETF replicates the performance of Bloomberg Barclays High Yield Very Liquid Index.
JNK has an expense ratio of 0.4%, compared to a category average of 0.49%. the ETF gained 4.7% over the past six months, and 2.7% over the past three months. It pays an annual dividend of $5.71, which yields 5.4% on the prevailing price. JNK’s 4-year average dividend yield is 6%.
JNK hit its 52-week high of $110.33 in January, but lost 32.6% due to the pandemic driven market crash, hitting its 52-week low of $83.18 in March. The ETF has gained more than 25% since then.
How does JNK stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Industry Rank
A for Overall POWR Rating.
You can’t ask for better. It is also ranked #2 out of 53 ETFs in the High Yield Bond ETFs category.
iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
HYG invests in dollar bonds issued by foreign companies operating both within or outside the United States. The portfolio companies mainly issue bonds in US dollars instead of their local currency to provide high coupon rates and attract a larger investor base. HYG’s main holdings include Altice France S.A., Sprint Corporation (S), and Transdigm Inc. With an AUM of $28.3 billion, HYG closely tracks the Markit iBoxx USD Liquid High Yield Index.
HYG’s expense ratio of 0.49% is on par with the category average. The ETF has gained 4.1% over the past six months, and 2.5% over the past three months. It currently pays an annual dividend of $4.22, yielding 5%. HYG’s 4-year average dividend yield is 5.5%.
HYG has gained more than 25% since hitting its 52-week low of $67.52 in March. The ETF hit its 52-week high of $88.53 in January.
It’s no surprise that HYG is rated “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank. It is currently ranked #1 in the High Yield Bond ETFs category.
VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)
ANGL invests in junk bonds which previously had a higher rating, but have been reduced to a “fallen angel” status due to financial troubles faced by issuing companies. It closely tracks the BofA Merrill Lynch US Fallen Angel High Yield Index with an AUM of $2.0 billion. ANGL’s major holdings include Carnival Corporation, Sprint Capital Corporation and Kraft Foods Group, Inc. (KRFT).
ANGL has an expense ratio of 0.35%, lower than the category average of 0.49%. It has returned 9.9% over the past six months and 3.9% over the past three months. ANGL currently pays $1.51 as dividend annually, which yields 5% based on the current price. Its 4-year average dividend yield is 5.8%.
ANGL has gained more than 45% since hitting its 52-week low of $21.13 in March. The ETF hit its 52-week high of $30.77 in August.
ANGL is rated a “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank. In the High Yield Bond ETFs category, ANGL is ranked #8.
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JNK shares were trading at $105.31 per share on Thursday afternoon, down $0.09 (-0.09%). Year-to-date, JNK has gained 0.21%, versus a 9.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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