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ETF Spotlight: Inside the Popular iShares iBoxx $ High Yield Corporate Bond ETF


The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is one of the most widely-held high yield bond ETFs on the market. Launched in 2007, HYG has provided investors with exposure to U.S. dollar-denominated corporate junk bonds and has averaged around 4.7% annual returns since its inception.


So far in 2024, HYG has returned -0.30% year-to-date as bond markets have experienced volatility from the Federal Reserve's aggressive interest rate hikes over the past two years to combat high inflation. However, investors have continued to flock to HYG as a way to potentially earn higher income than investment grade bonds.


The $14.5 billion HYG ETF seeks to track the investment results of an index composed of U.S. dollar-denominated, high yield corporate bonds. It holds over 1,200 junk bond issues from both U.S. and non-U.S. corporate issuers. With an effective duration of around 3.2 years, HYG aims to provide high current income.


The fund's 30-day SEC yield currently stands at an attractive 7.2%. This high yield comes with higher credit risk, as the bonds in the portfolio have lower credit ratings than investment-grade debt. Nearly 90% of HYG's holdings are rated BB or B.


While the rising interest rate environment has pressured high yield bond prices over the past two years, any potential pivot by the Fed to cut interest rates could provide a tailwind for HYG and other junk bond funds. Bond prices rise when yields fall.


For investors seeking to increase their portfolio income, HYG offers a liquid, diversified way to gain exposure to the high yield corporate bond market. However, its higher credit risk means the fund will likely experience greater price volatility compared to higher-quality bond funds.


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The information provided in this report is for general informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The opinions expressed in the report are our own and are subject to change without notice. We may have a position in the securities mentioned in the report, and we may buy or sell such securities without notice. Any investment decisions made based on the information in this report are solely the responsibility of the recipient. We do not accept any liability for any direct, indirect, or consequential loss arising from any use of this report or its contents.

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