NEW YORK ( TheStreet) -- A couple of weeks ago we looked at the sorts of risk investors face going too far out on the yield curve when trying to build a fixed-income portfolio. Interest rates are close to all-time lows, which means that the prices are high. Prices can certainly stay high for a long time, but buying high is obviously a risky proposition.
Many investors believe that they need to enter different or traditionally higher-yielding segments of the bond market in order to get a reasonable yield. In an effort to accommodate that sentiment, the exchange-traded products industry has come out with many funds targeting these high-yield segments of the bond market. For example, Van Eck recently launched the Market Vectors Fallen Angel High Yield Bond Fund ( ANGL). The investment universe for this fund is bonds that were rated investment grade when they were issued but that have since been cut to less-than-investment-grade ratings. Not surprisingly, the fund is heavy in bonds issued by financial companies. These make up 32% of the portfolio, with bonds from issuers such as Ally Financial, Royal Bank of Scotland ( RBS) and Capital One Financial ( COF). Not surprisingly, there are also bonds from struggling companies in other sectors such as Sprint ( S), Pulte Group ( PHM) and even Toys R Us. > > Bull or Bear? Vote in Our Poll According to the fund's fact sheet, the modified duration is five years with an average yield to worst of 7.48%. Of course, yield information for ETFs can always change, and the fund has an expense ratio of 0.40%. Another example of a new high-yield bond segment is the iShares Emerging Markets High Yield Bond Fund ( EMHY). This fund has similar duration and yield statistics as ANGL but charges a 0.65% expense ratio because trading emerging-market high-yield debt is more expensive than trading domestic debt even if the bonds in EMHY are dollar-denominated. The largest country weightings in EMHY are Venezuela at 14%, and Turkey and the Philippines at 13% each. Lebanon and Nigeria each get 4% weightings in the fund, so this is legitimately new exposure for retail investors. Broadly speaking, one of the benchmark funds for the high-yield space is the iShares iBoxx $ High Yield Corporate Bond ETF ( HYG), which has been trading for five years and has $14 billion in assets under management.