The 3 Best High-Yielding Short-Term Bond ETFs (HYS, SJNK)

Those seeking higher interest payouts in their fixed income portfolios can mitigate the inherent interest rate risk by investing in diversified short-term fixed income holdings housed within exchange-traded funds (ETFs). The following three such ETFs warrant a closer look.

Note: all financial data is current as of November 9, 2019.

KEY TAKEAWAYS

  • Individuals seeking higher interest payouts in their fixed income portfolios have the opportunity to somewhat mitigate inherent interest rate risk by investing short-term bond ETFs. 
  • Presently active funds within this category include the PIMCO 0-5 Year High Yield Corporate Bond ETF (HYS) and the SPDR Barclays Short Term High Yield Bond ETF (SJNK).
  • The Guggenheim BulletShares 2018 High Yield Corporate Bond ETF, which executed a full bullet repayment to investors on December 31, 2018, featured a duration of 2.0, coupled with an average yield to maturity of 7.79%. 

The PIMCO 0-5 Year High Yield Corporate Bond ETF

As a short-term fund with low interest rate sensitivity, the PIMCO 0-5 Year High Yield Corporate Bond ETF (HYS) rewards investors with the type of distribution yields often produced by the extended maturities associated with intermediate high-yield funds. To minimize interest rate sensitivity, the fund allocates the majority of its assets to bonds with maturity schedules of up to three years. The remaining holdings invest in debt instruments with maturities ranging from three to five years, resulting in a distribution yield of 5.31%, a weighted average to maturity of 3.29 years, and a yield to maturity (YTM) of 8.1%.

This ETF has $1.7 billion in assets under management (AUM), making it the fifth-largest ETF in the high-yield category. The portfolio is diversified over 379 positions, with 78.32% issued by United States-based companies and 7.74% issued by companies from Luxembourg.

The fund is the most expensive of the high-yielding ETFs in this group, with a portfolio duration of 1.59 years, an annual expense ratio of 0.56%, and a YTD return of 8.37%.

The SPDR Barclays Short Term High Yield Bond ETF

With low interest rate sensitivity and yields more closely representative of intermediate-term maturities, the SPDR Barclays Short Term High Yield Bond ETF (SJNK) offers metrics similar to those of the PIMCO 0-5 Year High Yield Corporate Bond ETF but tends to trade with a slightly higher degree of volatility. The fund has portfolio duration of 1.66 and a weighted average maturity of 3.20 years. The average YTM is 6.44%, which sits at the high end for ETFs in the short-term category.

With $3.19 billion in AUM, this is the fourth-largest fund in this category. Of the fund’s 566 holdings, 79.31% are issued from U.S. companies, 6.71% are issued from Luxembourg, followed by 6.71% from Canada. The fund has the highest distribution rate in the group at 5.71%, as well as the lowest expense ratio at 0.4%. The fund boasts YTD returns of 7.91%.

The Guggenheim BulletShares 2018 High Yield Corporate Bond ETF

Investors willing to accept a lower distribution rate in exchange for the scheduled return of principal may have favored the Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI). Rather than the usual perpetual open-ended ETF structure, this fund functioned more like a bond, with a bullet repayment date of December 31, 2018, at which time the fund was unwound and principal was returned to investors.

The fund combined the group’s lowest duration of 2.0 with a distribution rate of 5.2%, and an average yield to maturity of 7.79%. Daily trading volume averaged $4.1 million, reflecting the buy and hold nature of the fund. Like the SPDR Barclays Short Term High Yield Bond ETF, the top holdings by country were the United States (83.87%), followed by Luxembourg (6.12%). The fund showed a one-year return of -3.53% and a three-year annualized return of 1.26%.

The Bottom Line

These short-term high-yielding ETFs are characterized by low interest rate sensitivity and yields that are comparable to intermediate-term high-yield corporate bond funds. These offerings can function as risk mitigators for investors seeking high interest paying instruments in their fixed income portfolios.

As a rule, short-term bonds ETFs tend to fare better when market conditions are unfavorable.