Three Different High-Yield Bonds Strategies

All right, so that takes us next to the exposure category.

Tony, you're still up.

So, break it down for us.

How do these three ETFs compare? >> Three totally different strategies.

The easiest one to understand is VCSH.

You're looking at investment grade corporate bonds, so triple B and higher ratings with a weighted average maturity of 1 to 5 years.

In practice, this translates into a pretty minimal interest rate risk.

You got a 2.7year duration.

So, this one is going to move more with the short end of the yield curve.

And of course, staying investment grade in your corporate bond exposure means you get a yield pickup over treasuries, but not so much as high yield short-term bonds.

So, right now, you know, this is kind of like your I want to keep my cash somewhat safe, but earn a little more than what I can get from say a money market fund.

Um, HYGH is the interesting one.

So this ETF actually holds HYG as one of its underlying which is iShares like big liquid high yield bond that is particularly suitable for traders but it complements this with a allocation to interest rate swaps and what that does is that that mitigates a lot of the losses from rising rate years like 2022 but you lose the potential upside from years where interest rates fall.

So if you think about it from a total return perspective you're basically taking the interest rate interaction with bonds out of that.

So it's more to do with coupon clipping at this point.

And then AMGL is all about fallen angels.

So these are previously investment grade bonds that have since been downgraded.

And the theory there is that you know on the you catch them on the rebound from a total return perspective.

There's a theoretically a better risk and return trade-off.

But again when you package it into ETF it all depends on execution.

So when I think about how these exposures are, you know, suitable as in like an overall best for investors, I would go with A&G because it's it's it's a very wellexecuted um access to a segment of the market that is traditionally excluded from a lot of the bonds that investors especially on the retail side will hold, which is an aggregate strategy.

If you have an aggregate strategy like BND or AG, you are going to own the kind of stuff in VCSH.

Whereas for HYGH, I'm not really a fan of the use of swaps.

I don't like to hedge out certain types of risk.

I think you're compensated for that.

You know, it's more of a timing issue. 2022, it really didn't work well, which is why HYGH has done better than just HYG unhedged.

Whereas for A&G, you have a rare opportunity, like Shaina mentioned, to get what is traditionally a fairly inaccessible part of the high yield market and one that has better risk and return characteristics for in in a liquid, accessible, and cheap vehicle.

So on the exposure angle I would go with A and GL.