10 Surprising Facts About The Market’s First High Yield Bond ETF
Break out the party hats and balloons! The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) turns 10 this month and I think it’s something worth celebrating...Here are 10 things you probably didn’t know about the fund.
Written by Matthew Tucker (BlackRockBlog.com)
The fund started out with the idea of giving investors access to a diversified portfolio of high yield bonds on the stock market. Back then the question was: Who would use it? 10 years later, the answer is clear: HYG has become an integral part of fixed income markets. It is used by individuals to seek income, by large institutions to help manage liquidity, and by everyone in between...
1. Consistent performance
Since inception HYG’s annualized performance has been within 4 basis points (bps) of its index after fees. Its tight tracking stretches over a volatile period that included the 2008 financial crisis, the U.S. Treasury downgrade, the European sovereign debt crisis, and the collapse in oil prices.
2. Universal appeal
HYG is not just for institutional investors. Retail investors have also embraced HYG, and they make up approximately 51% of the fund holders.
3. Room to grow
HYG has grown to over $17 billion in assets under management (AUM). Even so, it represents less than 2% of the overall high yield bond market.
4. From over-the-counter to exchange-traded
84% of HYG’s trading occurs on equity exchanges like the New York Stock Exchange, without a bond needing to be traded. With over $750 billion in trades to date, HYG has become a robust source of liquidity for high yield investors.
5. Bond trading, fast forwarded
Unlike individual bonds, HYG can be traded as easily and rapidly as a stock. One of the most actively traded high yield bonds (Sprint 6% 11/15/22) traded on average 45 times per day in December 2016. HYG traded over 23,000 times per day on average during the same time period.
6. One basis point spread
HYG has been 50 times cheaper to trade than a high yield bond: 1 bp bid/ask vs. 50 bps for the cash bonds.
7. A “go-to” in a crisis
When high yield markets become volatile, investors turn to HYG. For example, on 11 December 2015, the onset of the high yield crisis, HYG traded $4.3 billion, the most ever for a corporate bond exchange-traded fund (ETF).
8. Open for business
HYG can provide an alternate venue for liquidity when the bond market is closed or impaired. For example, in 2016 HYG traded an average $1.7 billion on the exchange on Veterans Day and Columbus Day.
9. Supported by a broad ecosystem of investment professionals
There are 49 different firms that provide liquidity for HYG throughout the day, almost as many as the FedEx stock.
10. A player in the options market
HYG’s options market has tripled since 2015 to $12 billion today. If this market were its own fund, it would be the eighth largest fixed income ETF in the U.S.
HYG can be a good complement to a core bond position, providing a source of higher income potential and diversification. Coming off of a 10-year record of successful trading, HYG has played its supporting role well in many portfolios.
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