Volatile Month for High Yield Bonds

by | Nov 20, 2017 | ETFs, Volatility, ZBIG (ZEGA’s Buffered Index Growth)

Source: YCharts

Recently we have seen increased volatility among high yield bond funds. However, some funds have not experienced quite as much of it. Above we can see how Symbol: HYG, a high yield exchange traded funds, and two Guggenheim hold to maturity short duration high yield ETFs have performed. The chart illustrates recent changes when looking at the daily total return of each which includes dividends.

Advisors utilizing our ZBIG (ZEGA Buffered Index Growth) and Buy and Hedge Retirement portfolios understand that high yield short duration hold to maturity exchange traded funds are the foundation which equity exposure is layered upon.

In those portfolios ZEGA currently chooses to use the less volatile high yield funds BSJJ and BSJK which represent the 2019 and 2020 maturity cycles. These are referred to as the “Bullet Shares” and have a lower duration, which mean less sensitivity to interest rates, and hold the underlying corporate bonds to maturity. Lower duration generally is considered safer as the impact from rates is nominal while any short-term price dislocation is eventually priced out as the bonds get back to their par value at maturity.

Speaking of maturity, we expect the exchange traded funds to become less volatile as they approach maturity as opposed to something like HYG or JNK ETFs that maintain a higher duration without maturity certainty.



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