List of Junk Bond Funds

Paper bond, $1000 denominationList of low-cost junk bond funds and corresponding indexes if they are an index fund.

Default rates: 5-yr average default rate (1970-2008) skyrockets below BB (Moody’s Ba), so at least by that measure there’s a substantial difference:

Moody’s:

  • Above Baa: less than 1%
  • Baa: less than 2%
  • Ba = 8%
  • B = 21%
  • Caa = 40%
  • Ca/C = 47%

Junk Bond Funds

PHB - Fundamental High Yield Corp. Bond ETF. Tracks RAFI High Yield bond index. 0.50% expense ratio.

HYG - High Yield Corp. Bond ETF. Tracks iBoxx Liquid High Yield index. 0.50% expense ratio.

JNK - Capital High Yield Bond ETF. The Fund seeks investment results before fees and expenses that correspond generally to the price and yield performance of the Barclays High Yield Very Liquid Index that tracks the U.S. high yield corporate bond market. 0.40% expense ratio.

Indexes

RAFI methodology puts a premium on the company's ability to pay back bond interest rather than a cap weighted system which tends to focus on the heaviest issuers of debt which are usually the riskiest. The fundamental weighed index is supposed to reduce the risk of a junk bond fund. We believe the index rules that we designed and maintain for the RAFI Index provide the highest liquidity, creditworthiness, investability and interest rate risk balance for a high-yield index today.

the RAFI High Yield Bond Index, weightings afforded to underlying bonds are based on four factors: book value of assets, gross sales, gross dividends, and cash flow–each based on five-year averages. So instead of giving the largest allocations to the biggest issuers of junk bonds, the underlying index is maintained in a manner that will tilt holdings towards debt issued by higher quality firms. Firms with greater net assets and cash flows should generally be better able to repay their debt, reducing some of the often substantial credit risk associated with junk bonds.

Note the yield on a RAFI index fund may be lower than corresponding funds because of the lower credit risk.

Credit Suisse High Yield Index -  is designed to mirror the investable universe of the $US-denominated high yield debt market.

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