Though not entirely immune to recent shockwaves experienced in the bond market, high-yield corporate debt has proved surprisingly sturdy. The caveat is that higher-quality junk bonds have fared better than more speculative corporate debt when spreads recently widened.
Advisors and investors looking to generate income while eschewing risk in the junk bond space don’t need to look for that assistance. That’s because the WisdomTree U.S. High Yield Corporate Bond Fund (QHY ) is proving its mettle as of late.
About two-thirds of QHY holdings have BBB or BB ratings. In other words, they are at the higher end of the junk bond credit quality spectrum. The ETF’s prudent approach is benefiting investors in these turbulent times. As Behnood Noei, director of fixed income at WisdomTree, points out, the recent bond market calamity saw “BB-rated bonds—considered the higher-quality tier within the HY space—saw spreads widen by 73 basis points, while the more speculative CC-rated bonds experienced a significantly steeper widening of 153 basis points.”
QHY for the Junk Bond Win
The above data points pertain to a short time frame. But quality is an all-weather attribute. And it’s one that can serve bond investors across a variety of market settings. QHY makes it easy to access.
“QHY has historically maintained a higher allocation to higher-quality bonds—and that’s by design. Our investment approach, grounded in both fundamental and quantitative analysis, is intentionally structured to avoid lower-quality, potentially riskier issuers,” said Noei. “As of the end of Q1, QHY an over-weight position of approximately 9% in BB-rated bonds while remaining under-weight in lower-rated segments such as B and below.”
Also noteworthy is that the WisdomTree U.S. High Yield Corporate Bond Index — QHY’s underlying benchmark — was recently altered to pare equity momentum to align with the index’s previously existing fundamentally rooted methodology. Equity momentum has the potential to lift QHY’s long-term performance. But the strategy can be impactful when it comes to avoid dubious issues.
Bond market stress could be reborn and spreads could widen anew. of those factors could test investors’ patience while highlighting the perks offered by QHY
'Steady Focus on Quality'
“That’s where a steady focus on quality can make a real difference. QHY has shown how a thoughtful mix of fundamental research and timely quantitative insights—like the recent addition of equity momentum—can help it steer clear of the riskiest issuers. By tilting toward higher-quality bonds, QHY has delivered a better performance through recent volatility,” concluded Noei.
For more news, information, and analysis, visit the Modern Alpha Channel.
This article was prepared as part of WisdomTree’s general paid sponsorship of VettaFi | ETF Trends. This specific content within and any opinions expressed therein belong solely to VettaFi and do not reflect the opinion or analysis of WisdomTree, its employees, or its affiliates. Content published on VettaFi | ETF Trends is provided for educational purposes only and should not be considered investment or tax advice. For investment or tax advice, please consult a financial professional.
WisdomTree is an independent company, unaffiliated with VettaFi | ETF Trends. WisdomTree has not been involved with the preparation of the content supplied by VettaFi | ETF Trends. It does not guarantee, or assume any responsibility for its content.
