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Risk-Tolerant Investors May Like this High-Yield Fund

Compared to other bond-focused exchange-traded funds (ETFs) covered in the last few weeks, the iShares iBoxx $ High-Yield Corporate Bond ETF (HYG) invests in equities that carry heightened risk but offer enhanced potential returns.

HYG is one of the biggest corporate bond funds available, with more than $18 billion in assets under management. The fund invests in bonds from a variety of sectors but the biggest holding consists of communications companies’ bonds, which comprise about 25% of the portfolio.

The bond durations are no longer than 10 years, distributed somewhat evenly across the sub-10-year spectrum, with an average duration of around four years.

While HYG’s bond holdings are a little riskier than some, the upside is that they tend to pay a little higher yield than many other bond funds. At a time when bond yields are on the low side, this could make HYG more appealing to some investors.

The fund owns bonds of companies that are seen as riskier in the U.S. domestic space, but are not necessarily small-cap companies. One example of a riskier issue is scandal-plagued Valeant Pharmaceuticals International (VRX).

HYG currently yields more than 5% and has an expense ratio of 0.32%. As the chart below shows, the fund has performed well over the last 12 months as its share price rose more than 10%, while paying a nice dividend as well.

HYG’s top five bond issuers are HCA Inc. (HCA), 2.55%; CCO Holdings, 1.82%; Valeant Pharmaceuticals International (VCX), 1.56%; Dish DBS Corp., 1.51%; and Tenet Healthcare Corp. (THC), 1.47%. Companies such as CCO Holdings that are listed without tickers are private.

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There are many options for investing in the bond market, but high-yield U.S. domestic corporate bonds investors may like the iShares iBoxx $ High-Yield Corporate Bond ETF (HYG). It offers a market cap of almost $20 billion and ranks as a popular choices for investors.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.