Aside from simply seeking returns, high yield bond investing can also provide unique routes for portfolio diversification. For example, take a look at the BondBloxx USD High Yield Bond Healthcare Sector ETF (XHYH). The fund aims to provide similar results to the ICE Diversified US Cash Pay High Yield Healthcare Index.
This index in particular invests primarily in high-yield bonds across the healthcare sector. This includes a wide variety of healthcare sub-sectors, such as pharmaceuticals, medical products, health services and facilities, and managed care. To help mitigate risk, the index caps each issuer at 25% the market cap of the index.
XHYH aims to generate similar returns to this index by utilizing a representative sampling approach. By doing so, the fund provides investors with clear access to the valuable healthcare sector. As of June 14th, 2024, largest sub-sectors within the fund are health facilities, pharmaceuticals, and health services.
Mitigating Default Risk
In regard to credit rating, the majority of bonds within the fund fall between single-B and double-B ratings. By choosing junk bonds with a higher credit rating, the fund can mitigate some of the risk of default that occurs in high-yield investing.
As of June 14th, 2024, about 75% of bonds within XHYH have a maturity duration between three to seven years. By targeting investment towards intermediate duration junk bonds, XHYC can provide attractive returns while mitigating reinvestment risk and interest rate sensitivity.
On the topic of yield, XHYC has been providing investors with strong return potential. The fund has a 30-day SEC yield of 7.40%, as of May 31st, 2024.
All in all, XHYH proves that a high-yield fund can simultaneously provide a portfolio with monthly income and targeted sector diversification. Fund flows further illuminate how XHYH’s has resonated with investors, with the fund collecting over $17 million in net flows over the past month.
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