PowerShares' New High Yield Bond ETF Joins iShares' Product

Either they were keeping it a secret or I just missed it, but PowerShares just issued a high yield bond ETF under ticker PHB.

The fund holds fifty bonds with the largest weighted at just 2.36%. While junk bonds sometimes instill fear, only about 1% of junk bonds default. The realistic risk is one of more volatility than you might want in a fixed income product.

The average coupon is 7.95% and the average yield to worst is 8.35%. The fee is 0.50% which might seem high but it is the same as the iShares high yield fund (HYG).

We have had a lot of fixed income and commodity products come lately, which I think is a great development, and the trend in this direction will continue.

I am not sure this should be looked at as a way to necessarily get higher returns but I think it is realistic to think that, if used properly, these new tools can help smooth out the ride which is a concept I write about often and is coming to be more and more important, to me anyway.

As these disparate asset classes first become available, and then as choice comes to the market in these asset classes, it creates the opportunity to capture the real diversification that people like David Swensen are able to achieve.

An obvious [hopefully] caveat is that new products also invite the chance for misuse and/or over use. As is always the case there is no hurry to be the first one in the pool.

• More on Broad US Bond ETFs