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ETF Specialist

A Defensive Approach to Junk Bonds

These ETFs seek to provide safer exposure to the high-yield bond market.

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High-yield bonds carry considerable credit risk, which makes them more volatile and susceptible to the business cycle than investment-grade bonds. Most traditional high-yield bond index exchange-traded funds don’t attempt to mitigate this risk. Rather, they offer broad exposure to high-yield issuers and weight their holdings by market value, which can increase their exposure to issuers as they become more heavily indebted. However, there are a few good strategic-beta ETFs that attempt to turn down the risk of investing in high-yield bonds and may be worth considering.

Xtrackers Low Beta High Yield Bond ETF (HYDW) (0.20% expense ratio) attempts to mitigate risk by targeting the lower-yielding half of the high-yield corporate-bond market. It tracks the Solactive USD High Yield Corporates Total Market Low Beta Index.

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Neal Kosciulek does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.