The Federal Reserve didn’t throw the capital markets a curve ball when it decided to keep interest rates unchanged last week. Fortunately, fixed income investors looking for yield have options thanks to ETF provider Invesco.
The Invesco Global Short Term High Yield Bond ETF ( PGHY A- ) and the Invesco High Yield Bond Factor ETF ( IHYF ) are strong places to start. “Investors are trying to navigate through a treacherous strait in the market, with bonds generating near-zero income yields on one side and stocks with increasing volatility on the other side,” Adam Strauss writes in Forbes .“With good reasons to assume that the Federal Reserve will continue to buy Treasury bonds at an aggressive pace to cap bond yields for years to come, it is time to start thinking about alternatives to owning traditional bonds.”
Strauss also noted that while “bonds historically have paid a higher level of income than stocks, and retirees are more often than not dependent on generating investment income to fund their living expenses.”
“Unfortunately, the bond market has become almost uninvestable,” Strauss added. “The 10-year Treasury’s yield-to-maturity is currently 1%, which is more than it was in August 2020 when it touched an all-time low of 0.5%, but this paltry yield is still nowhere close to compensating investors for future inflation.”
Enter PGHY, which seeks to track the investment results (before fees and expenses) of the DB Global Short Maturity High Yield Bond Index. The fund invests at least 80% of its total assets in U.S. and foreign short-term, non-investment grade bonds that comprise the index.
The index provider selects bonds issued by corporations, as well as sovereign, sub-sovereign, or quasi-government entities from a universe of eligible securities that: are denominated in USD; are rated below investment grade; have not been marked as defaulted by any rating agency; have 3 years or less to maturity; have a minimum amount outstanding of $250 million; and have a fixed coupon.
For an alternative option with an active management style, IHYF seeks to achieve its investment objective by investing, under normal market conditions, at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in high-yield, below-investment grade, fixed-income securities, and in derivatives and other instruments that have economic characteristics similar to such securities.
It may invest up to 20% of its net assets in U.S. Treasury and agency securities. The fund may also invest up to 10% of its net assets in certain collateralized debt obligations.
The fund, which just launched on December 2, 2020, has a 0.39% expense ratio. Relative to its 0.77% category average, getting active exposure with this ETF comes at a low cost.
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