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SJNK: Looking At The Risk-Reward


  • We reviewed a high yield bond ETF late last year.
  • Today, we bring to you another and provide a comparison.
  • We may be at a historic inflection point in the credit cycle. What does it mean for the investors of these two ETFs? We will talk about that.
  • I do much more than just articles at Conservative Income Portfolio: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Back in December, we wrote on iShares 0-5 Year High Yield Corporate Bond ETF (SHYG). It yielded investors a healthy 4% real yield, but that came with a generous amount of default risk for this high yield or junk bond ETF. While it definitely did not meet the criteria of being a vehicle to park cash, we did suggest that investors with a higher appetite for risk take a nibble on this rather than some of their investment grade counterparts, to earn something resembling an actual yield.

Today we review another high yield bond fund, the SPDR Barclays Capital Short Term High Yield Bond ETF (NYSEARCA:SJNK) and offer our take. We will also offer comparisons with SHYG, at times using the most current numbers from that ETF's website, as a few have changed since our December piece.


Both SJNK and SHYG have around the same number of securities, with SJNK holding 748 and SHYG holding 735, at last count.

Their sector allocations also show striking similarities because they are basically benchmarking to the index.

Source: Compiled from SJNK and SHYG websites

Default Risk

SJNK, as its name suggests has almost all of its holdings in below investment grade investments.

Source: SJNK

Its weightage is similar to SHYG, both holding about 50% of investments rated BB, just a rung below investment grade.

Source: SHYG

High yield bonds by definition are speculative and risky. There is a reason the investors are rewarded with an actual yield rather than smokes and mirrors. The underlying issuers are paying a higher yield as their current business metrics are not strong enough to guarantee honoring of the bond commitments, whether interest or principal at maturity. That is what is broadly called the default risk.

The silver lining for the two ETFs in question, is that majority

ChartData by YCharts

ChartData by YCharts

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This article was written by

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