This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

High-Yield Bond ETFs That Limit Losses

Stocks in this article: JNKHYGTHHYHYLSHYHG

NEW YORK ( TheStreet ) -- At a time when most bond funds have been sinking, high-yield exchange-traded funds have suffered especially big losses.

During the past month, SPDR Barclays High Yield Bond (JNK) lost 5.7% while iShares iBoxx $ High Yield Corporate Bond (HYG) declined 5.5%, according to Morningstar.

But new hedged ETFs have been limiting the damage by selling some assets short, betting that bonds will fall.

Among the top performers is ProShares High Yield-Interest Rate Hedged (HYHG), which returned 0% in the past month.

Other hedged funds that have outdone conventional high-yield ETFs include Market Vectors Treasury-Hedged High Yield Bond (THHY) and First Trust High Yield Long/Short (HYLS).

High-yield funds, which hold bonds that are rated below-investment grade -- have suffered from an unusual one-two punch.

First, interest rates have climbed. Since the beginning of May, the yield on 10-year Treasuries rose from 1.66% to 2.58%. When rates rise, bond prices tend to fall as investors sell existing securities with low yields.

Second, investors have become nervous about risky investments of all kinds. As a result they have been dumping high-yield bonds. Since the beginning of April, investors have pulled $2.1 billion out of the SPDR high-yield fund alone, according to IndexUniverse.com.

To protect shareholders against difficult markets, the ProShares hedged fund starts by buying about 130 high-yield bonds, assembling a portfolio that tracks a Citigroup benchmark. Then the portfolio managers short Treasury bonds by selling futures. Whenever Treasury prices fall, the value of the futures increases. Gains from the futures lately have boosted the fund.

Instead of buying the ProShares fund, investors could achieve similar results by buying a high-yield ETF and combining it with a fund that shorts Treasuries. But that would require constant monitoring to make sure that one of the two funds did not surge and become overweighted in the portfolio.

ProShares makes matters easier because the fund constantly rebalances its portfolio so that the allocations to Treasury futures and high-yield bonds remain steady.

If rates continue to rise during the next year, as many economists expect, then the hedged funds should outdo the conventional high-yield ETFs. But if rates stay flat or decline, then the ProShares hedged fund is likely to trail.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,801.54 -13.40 -0.08%
S&P 500 2,069.67 +2.64 0.13%
NASDAQ 4,776.0240 +17.7720 0.37%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs