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A New ETF Reduces Junk Bond Volatility

February 22, 2017 8:40 am
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High-yield corporate bonds are often viewed as one of the more volatile corners of the fixed-income universe. A new exchange-traded fund could help investors access the advantages of junk bonds while mitigating some of the volatility.

The IQ S&P High Yield Low Volatility Bond ETF (NYSE:HYLV) debuted last week as the latest addition to IQ's lineup of unique fixed-income ETFs. HYLV tracks the S&P U.S. High Yield Low Volatility Corporate Bond Index, which “is compromised of U.S. dollar denominated high yield corporate bonds that have been selected in accordance with a rules-based methodology that seeks to identify securities that, in the aggregate, are expected to have lower volatility relative to the broad U.S. dollar denominated high yield corporate bond market,” according to IndexIQ, a unit of MainStay Investments.

Related Link: Pour A Glass Of This New Water ETF

Hello, HYLV

HYLV's underlying index caps individual issuers at 3 percent. The index allocates over 22 percent of its weight to bonds issued by consumer discretionary companies. High-yield debt from financial services and telecom issuers combine for over a quarter of the index's weight, according to issuer data. Junk debt hailing from the materials and energy sectors combine for over 20 percent of the index's weight.

HYLV has an effective duration of 4.32 years. Duration measures a bond's sensitivity to changes in interest rates. Of the bonds found in HYLV's index, 62.5 percent are rated BB+ or BB.

HYLV joins the IQ Enhanced Core Bond U.S. ETF (NYSE:AGGE) and the IQ Enhanced Core Plus Bond U.S. ETF (NYSE:AGGP) in the IQ bond ETF stable. AGGE tracks the IQ Enhanced Core Bond U.S. Index.

Those ETFs have about $330 million in combined assets under management, making them two of the more successful bond ETFs to come to market last year.

HYLV charges 0.4 percent per year, or $40 on a $10,000 investment.