Best High-Yield Bond ETFs for Q2 2021

High-yield bonds can be an attractive vehicle for investors because they pay higher interest rates than investment-grade bonds. On the other hand, high-yield bonds (alternately known as "junk" bonds) also carry a greater chance of defaulting than investment-grade bonds, making them a riskier addition to a portfolio. Investors seeking to benefit from the higher interest payouts of high-yield bonds while controlling some of the risk through diversification can invest in a basket of high-yield bonds contained in exchange traded funds (ETFs).

Key Takeaways

  • High-yield bonds underperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are FALN, ANGL, and FDHY.
  • The top holdings of the first two funds are high-yield bonds for Carnival Corp., and the top holding of the third fund is high-yield bonds for SBA Communications Corp.

There are 37 distinct high-yield bond ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). High-yield bonds, as measured by the Bloomberg Barclays U.S. Corporate High Yield Index, have underperformed the broader market. They have a total return of 7.7% over the past 12 months compared to the S&P 500's total return of 19.8%, as of February 8, 2021. The best-performing high-yield bond ETF, based on performance over the past year, is the iShares U.S. Fallen Angels USD Bond ETF (FALN). We examine the 3 best high-yield bond ETFs below. All numbers below are as of February 9.

iShares U.S. Fallen Angels USD Bond ETF (FALN)

  • Performance over 1-Year: 14.4%
  • Expense Ratio: 0.25%
  • Annual Dividend Yield: 5.08%
  • 3-Month Average Daily Volume: 857,084
  • Assets Under Management: $1.4 billion
  • Inception Date: June 14, 2016
  • Issuer: iShares

FALN focuses on high-yield bonds across all durations and from developed markets. The fund tracks the Barclays U.S. High Yield Fallen Angel 3% Capped Index, an index targeting so-called "fallen angel" bonds which were previously investment grade but have been downgraded to junk status as a result of the weakening of the issuer. Businesses suffering as a result of the COVID-19 pandemic have led to new fallen angel bonds across industries. The top holdings of FALN include high-yield bonds for Carnival Corp. (CCL), a British-American cruise operator; and high-yield bonds with two different sets of maturities for Sprint Capital Corp., a wireless telecommunications company, which was recently acquired by T-Mobile.

VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)

  • Performance over 1-Year: 13.5%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 4.64%
  • 3-Month Average Daily Volume: 1,726,141
  • Assets Under Management: $4.4 billion
  • Inception Date: April 10, 2012
  • Issuer: VanEck

ANGL aims to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE US Fallen Angel High Yield 10% Constrained Index. Like FALN, it focuses on fallen angel bonds. While these bonds are higher risk than investment-grade alternatives, this particular fund tends to hold bonds concentrated at the higher end of the credit quality spectrum, including some bonds which may eventually be upgraded back to investment grade. Nonetheless, ANGL is likely to be most appealing to risk-tolerant investors who want to make a tactical allocation in the high-yield bond space. The fund's top holdings include high-yield bonds for Carnival; Kraft Heinz Foods Co. (KHC), a food and beverage company; and Sprint Capital Corp.

Fidelity High Yield Factor ETF (FDHY)

  • Performance over 1-Year: 10.4%
  • Expense Ratio: 0.45%
  • Annual Dividend Yield: 5.44%
  • 3-Month Average Daily Volume: 37,206
  • Assets Under Management: $193.5 million
  • Inception Date: June 12, 2018
  • Issuer: Fidelity

FDHY typically invests at least 80% of its assets in intermediate-term, developed-market high-yield bonds in its goal of seeking a high level of income and capital appreciation. The fund has about 245 holdings and uses the ICE BofA BB-B US High Yield Constrained Index as a guide in structuring the fund and choosing investments. Besides ownership of corporate bond funds, FDHY's top holdings include high-yield bonds for SBA Communications Corp. (SBAC), a real estate investment trust owning and operating wireless communications infrastructure; TransDigm Inc. (TDG), an aerospace manufacturing company; and Molina Healthcare Inc. (MOH), a health insurance and managed care provider.

The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

Article Sources

  1. YCharts. "Financial Data." Accessed Feb. 9, 2021.

  2. ETFdb.com. "ETF Screener." Accessed Feb. 9, 2021.

  3. ETFdb.com. "iShares U.S. Fallen Angels USD Bond ETF." Accessed Feb. 9, 2021.

  4. VanEck. "ANGL VanEck Vectors Fallen Angel High Yield Bond ETF," Page 2. Accessed Feb. 10, 2021.

  5. ETFdb.com. "VanEck Vectors Fallen Angel High Yield Bond ETF." Accessed Feb. 9, 2021.

  6. Fidelity Investments. "FIDELITY HIGH YIELD FACTOR ETF," Accessed Feb. 9, 2021.

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