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ETF Specialist

The Trouble With Indexing High-Yield Bonds

Neutral-rated Xtrackers USD High Yield Corporate Bond ETF illustrates the challenges of indexing the junk-bond market.


Xtrackers USD High Yield Corporate Bond ETF (HYLB) tracks a market-value-weighted index that is more broadly representative of the investment opportunity set in the high-yield bond space than those underpinning some of its exchange-traded fund peers. At 0.15%, it boasts one of the lowest fees in the high-yield bond Morningstar Category. That said, being beholden to a benchmark means that issuance activity will dictate the fund's makeup, which in this market segment often results in greater credit risk. Additionally, liquidity filters prevent it from fully capturing the opportunities available to active peers. These considerations support its Morningstar Analyst Rating of Neutral.

The strategy tracks the Solactive USD High Yield Corporate Bond Index, which includes U.S.-dollar-denominated fixed-rate corporate bonds rated below-investment-grade with between one and 15 years remaining until maturity and at least $400 million of outstanding face value. The index is weighted by market value, which mitigates turnover and tilts the portfolio toward the largest issues.

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