These funds own the debt of somewhat shaky enterprises.
The big players in junk are BlackRock, with iShares iBoxx $ High Yield Corporate Bond (HYG), and State Street Corp., with SPDR Bloomberg Barclays High Yield Bond (JNK). Both of these funds are expensive. If you own one of them, consider a switch into something cheaper. Presumably you will incur no capital gain tax in the switch because you own your junk fund in a tax-deferred account.
At the top of our cost efficiency ranking is upstart Xtrackers USD High Yield Corp Bond (HYLB), offered by DWS Group. Thanks in part to a fee waiver in effect for another year, HYLB costs less than a fifth as much to hold as the two big junk funds. When the waiver ends, the DWS product will have an expense ratio half that on JNK.
These days junk funds offer yields about 3 percentage points better than the yield on ten-year Treasury notes. That spread is decent but not terrific by historical measures. From the published yield, mentally subtract 2 percentage points of expected annual erosion of your capital from defaults.
For an explanation of our rankings and a directory of fund categories, turn to Forbes Best ETFs.
*Honor Roll member. For the full list, turn to Best ETFs Honor Roll.
For a searchable directory of fund names and tickers, use the ETF Directory.
