High-Yield Bond ETF Offers a Potential Safe Haven

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

The stock market is a challenging place for an investor’s money right now, and that trend has investors seeking alternative investments to continue to grow capital or find a safe haven.

Bonds are typically considered a safer asset class and are classically seen as a good investment in market downturns because they are less volatile than stocks and have the potential to go up when the market goes down. A relatively aggressive way to play bonds is by investing in higher-yield instruments through an exchange-traded fund (ETF) such as SPDR Bloomberg High Yield Bond ETF (JNK).

High-yield or “junk” bonds offer potential returns by way of yield. This fund invests in high-yield corporate bonds with higher liquidity.

Similar to most ETFs, JNK is a lower-cost method of playing a basket of assets. In this case, the fund invests in bonds of different companies.

Year to date, JNK has lost less value than the major stock indexes. It is down by about 10%, while the NASDAQ is down more than 23% and the S&P 500 has slid further than 13%.

This return does not include JNK’s yield, which currently sits at 6.19%. In general, the fund’s value comes more from yield than price increases. JNK has increased in value during the last month, however. Assets managed are just over $6 billion, while its expense ratio is a reasonable 0.40%.

Chart courtesy of www.StockCharts.com

The bond holdings of the fund cover a wide range of yields, blending to just over 6%-plus at present. A selection of the broad range of corporations whose bonds it holds includes TransDigm Group, Inc. (NYSE: TDG), Centene Corp. (NYSE: CNC), Caesars Entertainment Inc. (NASDAQ: CZR), Carnival Corp. (NYSE: CCL) and American Airlines Group Inc. (NASDAQ: AAL).

For investors looking to find yield outside of the volatile stock market during current conditions, SPDR Bloomberg High Yield Bond ETF (JNK) provides one route to that goal.

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