High-yield bond ETFs have become a game-changer for income-focused investors, offering an easy way to gain exposure to higher-yielding bonds without the hassle of picking individual securities. Unlike traditional income strategies that require manually selecting dividend stocks or selling assets for liquidity, these ETFs provide a diversified and efficient approach to generating steady income.
In this article, I have highlighted three such ETFs: the iShares Broad USD High Yield Corporate Bond ETF (USHY), the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), and the SPDR Bloomberg High Yield Bond ETF (JNK). These funds offer attractive yields and help mitigate risks through broad diversification.
With growing investor demand for higher returns, the high-yield bond market has been on a steady rise. It reached $5.31 trillion in 2023 and is projected to hit $7.76 trillion by 2032, growing at a CAGR of 4.3%. This sustained expansion makes high-yield bonds appealing to those seeking enhanced income potential.
Beyond their attractive yields, high-yield bond ETFs have evolved to become more diversified across sectors. A decade ago, the top two industries accounted for over 26% of the U.S. high-yield market. Today, no single sector makes up more than 12%, reducing concentration risks and adding more stability. As of January 9, 2025, yields across U.S. and global high-yield bond markets stood at 7.4% and 7.2%, respectively, making these ETFs compelling for investors willing to take on some risk in exchange for higher income potential.
However, high-yield investments aren’t without risks. These ETFs are best suited for investors with a higher tolerance for market fluctuations, as they tend to be more volatile than investment-grade bonds. That said, high-yield bond ETFs could be worth considering for those seeking steady income and long-term growth.
Let’s look at the fundamentals of the top three High Yield Bond ETFs, beginning with number 3.
ETF #3: SPDR Bloomberg High Yield Bond ETF (JNK)
JNK seeks to offer a diversified exposure to U.S. dollar-denominated high-yield corporate bonds with above-average liquidity. The fund tracks an index with middle-rated bonds with at least one year to maturity and $600 million or more in outstanding face value. It can offer double-digit yields for investors willing to accept the associated risks.
JNK tracks the Bloomberg High Yield Very Liquid Index. As of February 04, 2025, the fund had assets under management (AUM) of $8.11 billion and an NAV of $96.19. JNK's expense ratio is 0.40%, lower than the category average of 0.43%.
The fund’s top holdings include State Street Institutional Investment Trust U.S. Government Money Market Fund Institutional (GVMXX) with a 0.90% weighting, EchoStar Corporation 10.75% 30-NOV-2029 at 0.60%, followed by Cloud Software Group, Inc. 9.0% 30-SEP-2029 with a 0.44% weighting. It currently has a total of 2350 holdings.
The fund pays an annual dividend of $6.33, translating to a 6.57% yield at the prevailing price level. Its dividend payouts have grown at an 11.1% CAGR over the past three years. The fund’s four-year average yield is 5.72%.
JNK has gained 2.5% over the past nine months to close the last trading session at $96.64. Its fund inflows came in at $426.49 million over the past month and $432.73 million over the past three months. Also, the ETF has a beta of 0.92.
JNK’s POWR Ratings reflect its promising prospects. The ETF has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Trade and Buy & Hold. Of the 59 ETFs in the A-rated High Yield Bond ETFs group, JNK is ranked #5. To see the POWR Ratings of JNK for Peer, click here.
ETF #2: iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
BlackRock Fund Advisors manages HYG. The fund invests in fixed-income markets of the globally developed region. It invests in U.S. dollar-denominated high-yield corporate bonds with a maturity of at least one year and less than 15 years. The fund seeks to track the performance of the Markit iBoxx USD Liquid High Yield Index.
As of February 04, HYG had $14.94 billion in assets under management and an NAV of $79.33. Its expense ratio of 0.49% compares to the category average of 0.43%. Also, it has a beta of 0.92.
The fund’s top holdings include U.S. Dollar with a 1.13% weight, EchoStar Corporation 10.75% 30-NOV-2029 with a 0.55% weight, Mozart Debt Merger Sub, Inc. 3.875% 01-APR-2029 with a 0.40% weight, and Cloud Software Group, Inc. 9.0% 30-SEP-2029 with a 0.37% weight. It has a total of 1,257 holdings.
HYG’s trailing-12-month dividend of $4.70 yields 5.91% on the current price level, while its four-year average dividend yield is 5.21%. Over the past three months, the fund’s net inflow came in at $811.43 million. It has gained 3.3% over the past year to close its last trading session at $79.72.
HYG’s promising outlook is reflected in its POWR Ratings. The ETF has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Trade and Buy & Hold and a B for Peer. HYG is ranked #2 among 59 ETFs in the same A-rated group. To access all of HYG’s POWR Ratings, click here.
ETF #1: iShares Broad USD High Yield Corporate Bond ETF (USHY)
USHY provides an expansive exposure to the U.S. dollar-denominated corporate high-yield bond market by including issuers from the FX-G10 countries. The fund invests in bonds with a minimum outstanding face value of $250 million, a minimum maturity date of 18 months, and at least one year until maturity. It tracks the ICE BofA U.S. High Yield Constrained Index.
With $18.67 billion in AUM, its top holdings are U.S. Dollar with a 0.87% weighting in the fund, EchoStar Corporation 10.75% 30-NOV-2029 at 0.42% weight, followed by Mozart Debt Merger Sub, Inc. 3.875% 01-APR-2029 and Cloud Software Group, Inc. 9.0% 30-SEP-2029 at 0.32% and 0.30%, respectively. The ETF has a total of 1,888 holdings.
The ETF’s expense ratio is 0.08%, favorably below the category average of 0.43%. USHY fund inflows were $6.51 billion over the past year and $2.39 billion over the past six months.
USHY pays an annual dividend of $2.53, which translates to a 6.82% yield at the current price level. The fund’s dividend payouts have grown at a 6.9% CAGR over the past three years. Its four-year average yield is 6.07%.
Over the past nine months, USHY has gained 2.9% to close the last trading session at $37.26. It has a five-year beta of 0.86. The fund’s NAV was $37.06 as of February 04, 2025.
USHY’s solid fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade and Buy & Hold and a B for Peer. It is ranked first among 59 ETFs in the same High Yield Bond ETFs group. Click here to access all the USHY ratings.
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HYG shares . Year-to-date, HYG has gained 1.82%, versus a 3.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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