Junk bonds continue to outperform stocks on the year as the asset classes compete for investors’ increasing appetite for risk.
The SPDR Barclays Capital High Yield Bond ETF (JNK) is up nearly 22% this year compared to only 7% for the SPDR S&P 500 (SPY).
The $2 billion JNK fund invests in non-investment grade, fixed-rate, taxable corporate bonds that have a remaining maturity of at least one year and are high-yield using the middle rating of Moody’s, S&P, and Fitch, respectively, Top holdings include HCA (9.25%, due 11/15/2016),Intelsat Jackson Holdings (11.25%, due 06/15/2016), CHS/Community Health Systems (8.875%, due 07/15/2015) and GMAC (6.875%, due 09/15/2011).
Investors who are enthusastic about high yield bonds don’t see default risk as a big issue. A recent WSJ article quotes junk investors as predicting that even if the default rate on high-yield corporate debt hits 14%, returns on the remaining junk bonds would be more than enough to offset the losses. The yield to maturity on JNK’s portfolio is 12.48%.
For more ETF investing choices, see the ETF Directory for a complete listing of fixed income-high yield ETFs.