On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the BondBloxx CCC-Rated USD Yield Corporate Bond ETF (XCCC) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Chuck Jaffe: One fund, on point for today … the expert to talk about it. Welcome to the ETF of the Week.
Yes, this is the ETF of the Week, where we get the latest take from the experts at VettaFi, specifically Todd Rosenbluth, their head of research. And if you go to VettaFi, you will get all the tools you need to be a savvy, smart investor in ETFs, and to look for the new, newsworthy, trending, unique, and intriguing ETFs that we talk about here. Todd Rosenbluth, it’s great to chat with you again.
Todd Rosenbluth: It’s great to be with you, Chuck. Thanks.
Chuck Jaffe: Your ETF of the week is…
Todd Rosenbluth: The BondBloxx CCC-Rated USD High Yield Corporate Bond ETF. XCCC.
Chuck Jaffe: XCCC. It’s a mouthful. The BondBloxx CCC-Rated USD High Yield Corporate Bond ETF. And this is kind of a different pick for you, Todd. Because we are certainly up the risk scale with this. So why this fund now?
Todd Rosenbluth: Well, we’re certainly seeing investors and advisors embrace taking on credit risk. We’ve seen high yield bond ETFs have strong inflows in the last 30 days. Investors feel more comfortable about the economy. They’re willing to take on risk ito get income. And XCCC is the riskiest, but highest reward-est way to get exposure. It’s just those CCC-rated bonds, further add on the credit spectrum.
But you get a 12% yield. The benefits of diversification. We think now is a good time to add a slice of this into your fixed income portfolio.
Chuck Jaffe: The yield, of course, is the big thing that’s going to draw people here. But it’s interesting timing to me, Todd. And I don’t mean market timing. I mean timing just in general. Because these are higher risk bonds. They are in the junk category to some extent, with interest rates higher for longer.
Surprisingly, we have not seen junk get more junk-ier. But I talked to experts who think that if interest rates stay this high, we will see more bond defaults. So, do you worry about something like that at all as you go out the risk scale?
Todd Rosenbluth: Well, that’s why I think this might be appealing. Because we could see people sell off some of the the bonds and have concerns. But you get the benefits of diversification. So owning one CCC-rated bond is risky, but owning hundreds of them in a diversified portfolio with the liquidity benefits of an ETF that BondBloxx offers helps alleviate many of those concerns.
Now, yes, there will be defaults. There will probably be more defaults than people might expect if the economy slows down, or we stay higher for longer. But we will see rate cuts. If we see rate cuts, people will want to turn to other areas for income and high yield corporate bonds from companies that still have the stability to stay rated.
We think it’s appealing. And again, not just one bond but hundreds of bonds. You’d get in the benefits of diversification.
Chuck Jaffe: How much of a portfolio are you willing to let this be? And does your money for that come from the risk asset side? In other words, do you use this as something of a stock substitute rather than, going from Treasuries to this. Or, is this, “I want to diversify my bond holdings. So I’ll take a sliver of my bonds and move this over.”
Todd Rosenbluth: Let me answer that a couple ways. Let’s start with with some of the math that’s behind this. High yield bond ETFs from iShares, from State Street, from others have roughly 10% of their assets in CCC-rated bonds. Most high yield bond exposure is in the BB- and B-rated category. XCCC can complement that for people who want to take on additional risk, and get higher reward and get that higher yield, but want more than 10% exposure to that risky category. To have it be 15% or 20% of their high yield exposure.
I think that’s where this naturally fits in. It’s a complement to an existing high yield portfolio. High yield is an area you want to only go into if you’re risk-tolerant. So this should not be coming from the Treasury bucket, but in more of your riskier fixed income assets. So we could see people move from equities into this category because you’re going to see similar risk/reward, but get the benefits of 12% yield.
Certainly be aware of what you own, what else this can fit into, and how it can complement the overall portfolio.
Chuck Jaffe: BondBloxx. A relatively new firm, started in 2021. And it’s all about precision of fixed income. So, for somebody out there who’s kind of just used blunt instruments. Here’s my Treasury fund, here’s my general bond fund, etc. This is kind of a different level of investment management. Is it OK to be a little bit precise? Like, yes, this is the one thing I want to do? Because this is more precise than a generic junk bond fund.
Todd Rosenbluth: You’re correct. So the broader high yield bond ETFs — there’s no set mandate to how much they’ll have in CCC. It’s more of the credit markets making that decision. If we see more downgrades within a high yield market, there will be more CCC-rated exposure in iShares or a State Street ETF. The beauty of this ETF is it gives you exactly what you’d hope it would.
You get only CCC-rated bonds. When a bond gets upgraded, or if a company defaults, it’s no longer part of the index behind this ETF once the rebalancing happens. I think the precision BondBloxx offers is quite appealing. You get to control the income and the risk you’re going to take and your clients are going to take if you’re an advisor.
Chuck Jaffe: In the last few days it went below the 200-day moving average. I know you’re not a trend follower. But when we’re talking about going out the risk scale, do you want to add that in as something you factor into when you do or don’t want this?
Todd Rosenbluth: So this is less of a timing play for us. We think investors are embracing credit risk. This is a great way of being able to do that. If you’re trying to time the market and you believe and you focus on the 200-day moving average, you might want to wait for that signal to shift. But we think strategically this can fit into a portfolio for people who have an intermediate-time horizon and want to take on credit risk. XCCC is a great way of doing that.
Chuck Jaffe: CCC-Rated High Yield Corporate Bond ETF. Ticker XCCC, the ETF of the Week from Todd Rosenbluth at VettaFi. Todd, great stuff as always. We’ll see you again next week.
Todd Rosenbluth: I’ll see you next week, Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, I am Chuck Jaffe. I’d love it if you would check out my hour-long, weekday podcast by going to MoneyLifeShow.com, or by searching for it wherever you find great podcasts. And if you’re searching for great ETFs, look no further than VettaFi.com, where they’ve got a full suite of tools that’s going to help you find them and manage them better.
They’re on Twitter at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest, he’s on Twitter or X at @ToddRosenbluth. The ETF of the Week is here for you every Thursday. Please make sure you don’t miss an episode by subscribing on your favorite podcast app. Until next week, when we see you again, happy investing everybody!
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