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Guggenheim Launches Junk Bond ETF

Zacks Equity Research
Updated
The Macerich Company (MAC) opens Scottsdale Fashion Square's refurbished luxury wing. The face-lift enables the mall to add an impressive tenant lineup to its roster.

Guggenheim launched a new fixed income fund focused on providing exposure to the high-yield space. 

 

Guggenheim BulletShares 2025 High Yield Corporate Bond ETF (BSJP) tracks the NASDAQ BulletShares USD High Yield Corporate Bond 2025 Index and holds a portfolio of bonds that have an effective maturity in 2025.

 

Fund Characteristics

 

The fund’s index seeks to measure the performance of U.S. dollar-denominated high-yield maturity targeted bonds in the corporate bond space. It has AUM of $5.0 million and has a moderate expense ratio of 42 basis points a year. It holds 31 junk bonds in its portfolio. The fund bears significant concentration risk as more than 47.3% is allocated to the top 10 holdings.

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From a sector look, Consumer non-cyclical, Energy and Industrials are the top three allocations of this fund, with 18.0%, 18.0% and 13.8% exposure, respectively (as of Aug 31, 2017). 

 

From a credit rating perspective, the fund has 50.5% exposure to BB rated bonds, 36.9% to B rated bonds, 10.8% to CCC rated bonds, 1.2% to BBB rated bonds and 0.5% to Cash. Therefore, due to its high yield focus, the fund bears default risk. However, it seeks to invest in the higher end of the junk bond space.

 

Moreover, the fund targets the intermediate end of the yield curve, as it seeks to invest in bonds with effective maturities in 2025. Therefore, the fund bears interest rate risk.

 

Per latest news reports, President Donald Trump is said to be more inclined toward Federal Reserve Governor Jerome Powell to replace Janet Yellen as the Fed chair when her term expires in February 2018. The markets breathed a sigh of relief on this report, as Powell is seen as a candidate who will not steer much from the current Fed policy. This has instilled a sense of stability in the markets.

 

However, there is still a lot of uncertainty with regard to the next Fed chair, as polls predict a close fight. If Kevin Warsh or John Taylor end up at the hot seat, a faster rate hike policy might be enacted, as both the candidates are seen to be more hawkish.

 

Competition

 

The fund faces a lot of competition from other high- yield funds in the space. Below we discuss a few ETFs that seek to provide exposure to the high-yield space (see all High-Yield/Junk Bond ETFs here).

 

SPDR Bloomberg Barclays High Yield Bond ETF JNK

 

This fund has AUM of $12.9 billion and seeks to provide exposure to high-yield bonds. It charges 40 basis points as fees per year and holds 976 junk bonds in its portfolio. From a sector look, Industrial, Finance and Utility are the top three allocations of this fund, with 87.6%, 9.1% and 3.0% exposure, respectively (as of Oct 18, 2017). The fund targets the short-to-intermediate end of the yield curve as it has an average maturity of 6.27 years and option adjusted duration of 3.60 years. The fund has returned 2.3% year to date and 1.9% in a year (as of Oct 19, 2017).

 

iShares 0-5 Year High Yield Corporate Bond ETF SHYG

 

This fund has AUM of $3.6 billion and seeks to provide exposure to high-yield bonds. It charges 30 basis points as fees per year and holds 615 junk bonds in its portfolio. From a sector look, Communications, Consumer Non-cyclical and Energy are the top three allocations of this fund, with 19.5%, 13.5% and 12.8% exposure, respectively (as of Oct 18, 2017). The fund targets the short end of the yield curve as it has a weighted average maturity of 2.19 years and an effective duration of 2.02 years. The fund has returned 0.9% year to date and 1.2% in a year (as of Oct 19, 2017).

 

PIMCO 0-5 Year High Yield Corporate Bond Index Fund HYS

 

This fund has AUM of $1.9 billion and seeks to provide exposure to high-yield bonds. It charges 55 basis points as fees per year and holds 395 junk bonds in its portfolio. From a sector look, High Yield Credit, U.S. Government-Related and Investment Grade Credit are the top three allocations of this fund, with 95.7%, 3.3% and 2.3% exposure, respectively (as of Sep 30, 2017). The fund targets the short end of the yield curve as it has a weighted average maturity of 3.01 years and an effective duration of 1.82 years. The fund has returned 1.7% year to date and 2.4% in a year (as of Oct 19, 2017).

 

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SPDR-BBC HY BD (JNK): ETF Research Reports
 
PIMCO-0-5 HY CB (HYS): ETF Research Reports
 
ISHARS-0-5Y HCB (SHYG): ETF Research Reports
 
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