With a potential rate cut from the Federal Reserve approaching, investors would do well to assess their bond portfolio.
High yield bonds, also known as junk bonds, have generally had a strong year so far, buoyed by continued growth in the economy. Junk bonds also offer the added benefit of portfolio diversification among fixed income assets. This comes alongside high yield bonds presenting lower potential sensitivity to interest rate risk.
However, these benefits do not come without caveats. Despite high yield bonds offering great potential, they can carry higher risk of default compared to their investment-grade counterparts.
De-Risk With Active
This is where an actively managed strategy can pay off in spades. As a good example, take a look at the Eaton Vance High Yield ETF (EVHY ).
For investors, EVHY aims to provide access to strong current income. Alongside income potential, the fund seeks capital growth as an additional benefit.
As expected of a high yield bond strategy, EVHY primarily invests in junk bonds. In terms of credit quality, Bonds rated BB and B hold the majority of space within the portfolio. These bonds can offer more yield potential than their higher-credit peers, along with a lower risk of default compared to options rated CCC.
Along with a well-crafted portfolio, EVHY can draw appeal with its active management. Even though high yield bonds are a traditionally risky field, active managers can more deftly maneuver market shifts compared to an indexing strategy. Additionally, an actively managed ETF can be able to access more potential investing opportunities than a passive strategy.
All in all, an active strategy can help de-risk a junk bond strategy while seeking higher rewards. Considering that the market could see a shakeup from the Federal Reserve’s rate decision in September, now may be a good time to opt for an active strategy.
The multifaceted benefits of EVHY’s active strategy can lead to attractive investment results. Eaton Vance notes that as of July 31, 2024, EVHY is offering a distribution yield of 7%.
For more news, information, and analysis, visit The ETF Yield Channel.
