HYS Vs. HYG: Little To Differentiate These HY Corporate ETFs

seekingalpha06-04

The iShares iBoxx $ High Yield Corporate Bond ETF is the largest "junk bond" ETF.The PIMCO 0-5 Year High Yield Corporate Bond Index ETF has better return data but seems to have a higher risk portfolio...

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HYG: Little To Differentiate These HY Corporate ETFs","media":"seekingalpha","content":"<div>\n<p>The iShares iBoxx $ High Yield Corporate Bond ETF is the largest \"junk bond\" ETF.The PIMCO 0-5 Year High Yield Corporate Bond Index ETF has better return data but seems to have a higher risk portfolio...</p>\n\n<a href=\"https://seekingalpha.com/article/4696584-hys-vs-hyg-little-to-differentiate-these-hy-corporate-etfs\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>HYS Vs. 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HYG: Little To Differentiate These HY Corporate ETFs\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-04 21:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4696584-hys-vs-hyg-little-to-differentiate-these-hy-corporate-etfs><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The iShares iBoxx $ High Yield Corporate Bond ETF is the largest \"junk bond\" ETF.The PIMCO 0-5 Year High Yield Corporate Bond Index ETF has better return data but seems to have a higher risk portfolio...</p>\n\n<a href=\"https://seekingalpha.com/article/4696584-hys-vs-hyg-little-to-differentiate-these-hy-corporate-etfs\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"HYG","symbol_name":"债券指数ETF-iShares iBoxx高收益公司债","start_time":0,"source_url":"https://seekingalpha.com/article/4696584-hys-vs-hyg-little-to-differentiate-these-hy-corporate-etfs","article_id":"2440723855","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1391212494/image_1391212494.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2440723855","pubTimestamp":1717506000,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"The iShares iBoxx $ High Yield Corporate Bond ETF is the largest \"junk bond\" ETF.The PIMCO 0-5 Year High Yield Corporate Bond Index ETF has better return data but seems to have a higher risk portfolio","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"HYG":"债券指数ETF-iShares iBoxx高收益公司债","HY":"Hyster-Yale Materials Handling C","HYS":"PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund"},"translate_title":"HYS对。HYG：这些HY企业ETF几乎没有什么区别","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"HY":1,"HYG":1,"HYS":1},"content_text":"The iShares iBoxx $ High Yield Corporate Bond ETF is the largest \"junk bond\" ETF.The PIMCO 0-5 Year High Yield Corporate Bond Index ETF has better return data but seems to have a higher risk portfolio.Both ETFs are reviewed in depth and then compared. My conclusion: it is a toss-up as to which is the better ETF to hold short-term and/or long-term.   RapidEye Introduction My original title assumed these ETFs had a wide difference in their portfolio's duration/maturity statistics, which would have been important if you also think we are at the top of an interest-rate cycle. While a sudden burst of inflation or jump in economic activity would upset that idea, rates seem to have plateaued, though the FOMC isn’t in a hurry to start down from where we are in my view. While those two key data points are not that far apart, the PIMCO 0-5 Year High Yield Corporate Bond Index ETF (NYSEARCA:HYS) has shorter values but what I see as a higher credit risk. The iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA:HYG) comes with slightly better opportunity for capital gains when rates decline but has a lower yield at this point. Investors need to pick between a higher yield/higher risk ETF, HYS and HYG with its slightly longer duration/maturity factors that will favor it when rates decline and lower yield. How you decide will determine which gets the Buy rating as it's a toss-up for me. iShares iBoxx $ High Yield Corporate Bond ETF review Data by YCharts Seeking Alpha describes this ETF as: iShares iBoxx $ High Yield Corporate Bond ETF is managed by BlackRock Fund Advisors. The fund invests in fixed income markets of global developed region. It invests in U.S. dollar-denominated high yield corporate bonds with a maturity of at least one year and less than 15 years and a sub-investment grade rating from Fitch, Moody's or S&P. The fund seeks to track the performance of the Markit iBoxx USD Liquid High Yield Index consists of liquid USD high yield bonds, selected to provide a balanced representation of the USD high yield corporate bond universe. The index is market-value weighted with an issuer cap of 3%., by using representative sampling technique. iShares Trust - iShares iBoxx $ High Yield Corporate Bond ETF was formed on April 4, 2007. HYG has $17.2b AUM and comes with 49bps in fees. The TTM Yield is 5.96%. Index review Always important to understand the basics of the index used by an ETF that invests based on that. This is the description I found: The Markit iBoxx USD Liquid High Yield Index consists of liquid USD high yield bonds, selected to provide a balanced representation of the USD high yield corporate bond universe. The indices are an integral part of the global Markit iBoxx index families, which provide the marketplace with accurate and objective indices by which to assess the performance of bond markets and investments. The index is market-value weighted with an issuer cap of 3%. Source: cdn.ihsmarkit.com Index The key to me is no issuer can be more than 3% of the index across all their bonds held, not each individual bond. Holdings review I like covering iShares ETFs because they provide a good set of portfolio facts: ishares.com HYG They also provide sector exposure, something not always provided but critical in assessing risk.   ishares.com HYG sectors The economic balance is evident in that both Consumer sectors are in the top three. HYG does not have a high percent of bonds maturing within the next year, reducing their ability to roll into new bonds at what should be the top of this interest-rate cycle.   ishares.com HYTG maturities The next chart showing ratings allocations is a bit worrisome.   ishares.com HYG ratings The default rate for bonds rated below BB is very high, topping 50% in any 5-year period. Since the ETF invests based on an index, they must hold these bonds. Top holdings ishares.com HYG holdings With over 1200 bond positions, naturally the top ones area low overall percent of the portfolio: here under 7%. That will minimize the effect if indeed they hold a bond that defaults. Distributions review seekingalpha.com HYG DVDs While somewhat muted, the payouts do show correlation to the fall and then rise in interest rates. With a yield near 6%, the ETF yields more than CDs, though with price and other risks CDs do not come with. PIMCO 0-5 Year High Yield Corporate Bond Index ETF review Data by YCharts Seeking Alpha describes this ETF as: PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund is an exchange traded fund launched and managed by Pacific Investment Management Company LLC. It invests in the fixed income markets of the United States. The fund invests in U.S. dollar denominated below investment grade corporate bonds with remaining maturities of less than 5 years. The fund invests in securities that are rated below investment grade by Moody’s, S&P and Fitch. It seeks to track the performance of the ICE BofA 0-5 Year US High Yield Constrained Index, by using representative sampling technique. PIMCO ETF Trust - PIMCO 0-5 Year High Yield Corporate Bond Index ETF was formed on June 16, 2011. HYS has $1.2b IN AUM and has slightly higher fees at 56bps. The TTM yield is 6.92%. Index review ICE describes this index as: ICE BofA 0-5 Year US High Yield Constrained Index tracks the performance of short-term US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody's, S&P and Fitch), at least 18 months to final maturity at the time of issuance, at least one month but less than five years remaining term to final maturity as of the rebalancing date, a fixed coupon schedule and a minimum amount outstanding of $250 million. In addition, qualifying securities must have risk exposure to countries that are members of the FX-G10, Western Europe or territories of the US and Western Europe. Source: ICE.com/index A look at the index composition by Ratings show this: indices.ice.com Holdings review For many of their bond ETFs, PIMCO only provides high-level sectors, in this case that they hold HY corporates but not what the sector exposure is that other managers provide, so I will move onto maturities. pimco.com HYS maturities While none mature within the next year, they will experience a 94+% replacement rate over the next five. If rates come down slowly, they would be a positive compared to HYG's maturity timetable. For ratings, PIMCO provides more detail than most managers, breaking down ratings into the +/- subgroupings. pimco.com HYS ratings Here, almost half the portfolio is rated below BB-, so while Morningstar might rate both B+, I see more default risk facing HYS than HYG. Top holdings pimco.com HYS holdings With less positions (<900), the top ones comprise 9% of the portfolio, but again with the largest one being under 1% as is the case in HYG. Distributions review seekingalpha.com HYS DVDs With a lower duration and WAM, HYS shows less variation in its payouts compared to HYG. HYS has shown payout growth over all the reported time periods, whereas HYG has negative growth for the past 5 years. Comparing ETFs   Factor iShares HYG PIMCO HYS   AUM $17.2b $1.2b   Fees 49bps 56bps   Yield 5.96% 6.92%   Eff Duration (yrs) 3.28 2.28   Eff Maturity (yrs) 4.32 3.43   Average rating B+ B+   Average coupon 6.25% 6.41%   Average price $94.28 $96.32   YTM 7.6% 8.6%   Click to enlarge Here is how both ETFs have fared over the past decade, total return wise. PortfolioVisualizer.com Total returns were as follows showing HYS has done better consistently:   Factor iShares HYG PIMCO HYS   1-year 7.46% 8.31%   3-year .63% 3.22%   5-year 2.50% 3.22%   10-year 3.13% 3.56%   Click to enlarge The risk metrics over the same period were:   Factor iShares HYG PIMCO HYS   Beta(*)  0.40 0.35   Alpha (annualized) -1.58% -0.56%   R2  67.14% 67.39%   Sharpe Ratio 0.25 0.35   Sortino Ratio 0.36 0.46   Click to enlarge The metric data all point to the HYS ETF treating investors better without having to take on the added risks of a slightly longer duration ETF like HYG. That said, as stated earlier, the HYS portfolio has a higher exposure to bonds more prone to defaulting. After reviewing both ETFs, investors need to pick between a higher yield/higher risk ETF, HYS and HYG with its slightly longer duration/maturity factors that will favor it when rates decline. How you decide will determine which gets the Buy rating, as it's a toss-up for me. Portfolio strategy  Maybe readers more focused on the High-Yield Corporate segment of the bond market can suggest an ETF where the WAM is over 7, in other words, distinctly longer than either of these ETFs. When you look at how UST or Investment-Grade short and long duration/maturities have done during falling rate environments, the long duration/maturity ETFs have the better results as their asset prices gain bigger movements. If no such HY ETF fund exists, investors should consider an ETF like the Vanguard Long-Term Corporate Bond Index Fund ETF (VCLT).","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2440723855"}