Top Performing Fixed Income ETFs

July 03, 2018

Munis Outperforming

Stripping out inverse ETFs from our list reveals several other interesting fixed-income funds that are outperforming in 2018. A few more convertible bond ETFs make an appearance: the iShares Convertible Bond ETF (ICVT), up 4.9%, and the First Trust SSI Strategic Convertible Securities ETF (FCVT), up 4.5%.

 

Top-Performing Fixed-Income ETFs Of The Year (excluding inverse)

Ticker Fund YTD Return (%)
HYLD Peritus High Yield ETF 5.63
CWB SPDR Bloomberg Barclays Convertible Securities ETF 5.50
ICVT iShares Convertible Bond ETF 4.89
HYND WisdomTree Negative Duration High Yield Bond Fund 4.66
FCVT First Trust SSI Strategic Convertible Securities ETF 4.46
HYMB SPDR Nuveen S&P High Yield Municipal Bond ETF 3.17
SFHY WisdomTree Fundamental U.S. Short-Term High Yield Corporate Bond Fund 3.15
HYD VanEck Vectors High-Yield Municipal Index ETF 2.67
SHYD VanEck Vectors Short High-Yield Municipal Index ETF 2.56
KCNY KraneShares E Fund China Commercial Paper ETF 2.30
HYGH iShares Interest Rate Hedged High Yield Bond ETF 2.22
CBON VanEck Vectors ChinaAMC China Bond ETF 2.18
HYIH Xtrackers High Yield Corporate Bond Interest Rate Hedged ETF 2.14
SNLN Highland iBoxx Senior Loan ETF 1.99
FLRT AdvisorShares Pacific Asset Enhanced Floating Rate ETF 1.94

Data measures total returns for the year-to-date period through June 27, 2018

 

Another group that's done well this year: municipal bond ETFs. The SPDR Nuveen S&P High Yield Municipal Bond ETF (HYMB), the VanEck Vectors High-Yield Municipal Index ETF (HYD) and the VanEck Vectors Short High-Yield Municipal Index ETF (SHYD) are each up around 3% each so far this year.

According to James Colby, portfolio manager at VanEck, issuance of new muni bonds is down 15-20% year-to-date, while demand has been steady, lending support to the asset class.

HYMB currently has a 30-day SEC yield of 3.83%, but its taxable equivalent yield (based on the highest federal income rate) is 6.47%. Similarly, HYD has a 30-day SEC yield of 3.96% and a taxable equivalent yield of 6.29%.

Solid Returns For Junk Bonds

Along with munis, short-term corporate bond ETFs have also delivered solid returns. The WisdomTree Fundamental U.S. Short-Term High Yield Corporate Bond Fund (SFHY) returned 3.2% and currently has a 30-day SEC yield of 4.7%.

SFHY has a relatively low duration of 2, shielding it somewhat from this year's increase in rates.

The Xtrackers High Yield Corporate Bond Interest Rate Hedged ETF (HYIH) similarly holds junk bonds, but to reduce its interest rate risk, it simultaneously shorts Treasury futures of equal duration.

The WisdomTree Negative Duration High Yield Bond Fund (HYND), also among the top performers, takes this strategy a step further by "overhedging" with Treasurys to target a duration of negative 7.

Both HYIH and HYND are essentially pair trades—going long high-yield corporate bonds and going short Treasurys.

China & Floating Rate Bonds

Rounding out the list of top-performing fixed-income ETFs are two China bond ETFs and two floating-rate ETFs.

The KraneShares E Fund China Commercial Paper ETF (KCNY) and the VanEck Vectors ChinaAMC China Bond ETF (CBON) both provide exposure to China's onshore bond market.

The Highland iBoxx Senior Loan ETF (SNLN) and the AdvisorShares Pacific Asset Enhanced Floating Rate ETF (FLRT) hold portfolios of floating-rate bank loans—debt securities whose coupon payments adjust periodically based on market interest rates.

Because their yields adjust, these funds have little to no interest rate risk, but come with added credit risk, as higher rates make it more difficult for borrowers to make interest payments.

Email Sumit Roy at [email protected] or follow him on Twitter sumitroy2

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