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HYDB Vs. HYG: Comparing 2 High-Yield Corporate Bond ETFs

Published Wed, 25 Mar 2020 09:07:18 -0400 on Seeking Alpha

HYDB is marketed as a defensive and value-oriented play on high-yield corporate bonds.
However, the ETF has a higher yield, more exposure to cyclical sectors, lower trading volume, and roughly equal credit quality metrics as its larger peer, HYG.
One thing HYDB has going for it is the lower expense ratio of 0.35% versus HYG's 0.49%.
HYDB may very well live up to its "defensive" title through its specific holdings criteria, but that is not apparent yet based on its 2.5-year history.
A Tale Of Two ETFs
For years, high-yield corporate bond ETFs have scarcely offered what their names would imply: high yields. Certainly, the ~5% yield for high-yield (i.e. "junk bond") ETFs at the end of 2019 was significantly higher than the 1.75% dividend yield of the S&P 500 (SPY), but from a historical perspective, 5% for junk bonds is very low. In the summer of 2008, for instance, before the onset of the Financial Crisis, junk bond ETFs yielded around 7.5%.
During the Financial Crisis of 2008-2009, junk bonds, as measured below by the iShares High Yield Corporate Bond ETF (HYG), fell about 40% from peak to trough:
Data by YCharts
In this article, I will compare the HYG to another BlackRock (BLK) junk bond ETF that is supposedly more defensive in nature, the iShares Edge High Yield Defensive Bond ETF (HYDB). I was initially drawn to this ETF because of its marketing as a more conservative way to gain exposure to the high-yield debt market. Upon closer inspection, however, it's difficult to ascertain how exactly it's supposed to be more defensive than a broad-based junk bond ETF like HYG.
For one thing, HYG is a much larger, more liquid fund with over $13 billion in assets and tens of millions of shares traded each day, while HYDB is a smaller fund of $31.9 million with daily volume in the mid single-digit thousands.
During the current selloff, the two ETFs have performed roughly the same, with HYG up 4.12% on Tuesday's market rally versus... Read more