In terms of sheer size, DWS may not compete with the Vanguards and BlackRocks in the ETF space when it comes to garnering the most market share. However, it does something to discern itself from the masses: offer unique ETF products. It’s a formula that’s served the ETF provider for many years. One fund that continues that tradition of product differentiation is the Xtrackers USD High Yield BB-B ex Financials ETF (BHYB ).
The fund tracks the ICE BofA BB-B Non-FNCL Non-Distressed US HY Constrained Index, focusing on high yield bonds rated Ba1/BB+ to B3/B-. As its fund name also explicitly says, it steers clear of corporate debt within the financial sector. The obvious benefit of BHYB is the yield it can offer versus investment-grade options, but it’s also exhibited strong price appreciation.
BHYB proves that investors don’t need to sacrifice price appreciation in lieu of attaining more yield and vice versa. BHYB has been a strong performer that’s even outpacing a default investment-grade option in the iShares Core U.S. Aggregate Bond ETF (AGG ) when looking at the three-year time horizon. BHYB is just ahead of AGG the past three years at 8.71% versus 8.05%, but has outpaced AGG at various timeframes within that period.
When placed side by side with another popular investment-grade bond fund, the Vanguard Total Bond Market ETF (BND ), the outperformance remains in the three-year timeframe. It’s another example of how BHYB stacks up against the U.S. bond stalwarts in the ETF marketplace.
Yield in a Time of Easing
Some investors may view the performance disparity as paltry, opting to take the safer option of investment-grade debt in the AGG and BND. As already mentioned, given that BHYB operates in the high yield bond arena, it naturally does something better than the two investment-grade options from BlackRock and Vanguard: offer more income.
Getting more yield is certainly pertinent nowadays, given the U.S. Federal Reserve’s rate-cutting cycle. While the Fed initially said that it only intends to implement one cut in 2026, that could change with a new Fed Chair this year. This could mean more aggressive cuts than anticipated, bringing down yields of safer haven bonds. In turn, this could mean more investors dialing up on credit risk and looking at high yield options. One of them should be BHYB. As of January 2, BHYB’s 30-day SEC yield is at 6.07% with a distribution rate of 6.44%.
Strong gains and strong yield — as mentioned, it can be difficult finding both in one fund. However, BHYB has these characteristics and thus, should be on fixed income investors’ radars.
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