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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.

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